How would the following actions affect a firm’s 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 firm’s normal 35% markup cost.

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.