Question

Suppose Jenny Inc. has a current ratio of 2.3. Which of the following would increase its current ratio?

1)	Writing off an accounts receivable.

2)	Paying off an accounts payable.

3)	Purchasing inventory using cash.

4)	Purchasing intangible assets using cash.

Answer 1

Correct Option 2 i.e. Paying off an accounts payable.
When we pay of accounts payable both denominator and numerator decrease with the same amount. Hence overall current ratio will be increase.
Understand with the help of below example
Lets Assume
Current Assets	230000
Current Liability	100000
Current Ratio	2.3
Now lets assume that 50000 accounts payable are aid off, revised values will be as follows
Current Assets	180000
Current Liability	50000
Current Ratio	3.6