A company makes a cash sale with a positive gross margin. Which one of the following statements describes the effect of the sale on the company?
A. Current ratio increases
B. Current ratio decreases
C. No change to Juan Foods’ current ratio
D. Insufficient information to judge effect on current ratio

Ya got to show some effort, James... you've read the forum's homework-help guidelines.

Well I thought that the answer was b.. since cash has increased and current ratio is current asset / current liabilities, the total ratio would be smaller.
That's my opinion but not sure if it is right.

Cash increases. Cash is a current asset. Do you want to try again? :)

Don't overlook the words "...with a positive gross margin", which is necessary tidbit for answering correctly.

In a sale, you've just swapped one asset (inventory) for another (cash). If it was an equal trade, then total current assets would be left unaffected (and so too, then, the current ratio).

But a sale that generates a profit ("positive gross margin") implies that you've received an amount of cash from Customer that's greater than the dollar amount of inventory that went out the door under Customer's arm. Cash up; Inventory down; but overall, Current Assets have increased since the former exceeds the latter.

In the Current Ratio, the denominator (current liabilities) are unaffected by the sale; whereas we've just seen that the numerator has increased.