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    jaysplace's Avatar
    jaysplace Posts: 1, Reputation: 1
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    #1

    Jun 3, 2006, 10:08 AM
    Current Ratio
    How would the following actions affect a firmís current ratio?

    1. A customer prepays in full for specially ordered merchandise that it will take 60 days to manufacture.


    2. Inventory is sold at the firmís normal 35% markup cost.
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Jun 3, 2006, 04:25 PM
    1)
    Dr. Prepaid
    Cr. Cash

    CA goes up and down by an equal amount, therefore no change to Current Ratio

    2)
    Dr. Cash
    Cr. Inventory
    Cr. Revenue

    CA goes up more than it goes down.

    Net, CA goes up, CL stays the same, so Current Ratio goes up.

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