How would the collection of accounts receivable most likely affect the current and cash ratios? Current...
How would the collection of accounts receivable most likely affect the current and cash ratios?
Current vs Cash
1. No effect Increase
2. Increase Increase
3. No effect No effect
Homework Answers
When accounts receivable are collected, accounts receivable decreases and cash increases. However, due to this transaction the current assets do not change. Hence this will not change the current ratio.
Cash ratio on the other hand would increase because the cash balance increases with collection of receivables
Hence there is no effect on current ratio but increasing effect on cash ratio
Correct choice A
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