[amp_mcq option1=”Increase current ratio” option2=”Decrease current ratio” option3=”Increase gross profit percentage” option4=”Decrease gross profit percentage” correct=”option1″]
The correct answer is: A. Increase current ratio.
A current ratio of 2:1 means that a company has $2 in current assets for every $1 in current liabilities. When a company purchases goods on account, it increases its current assets (accounts payable) and its current liabilities (accounts payable). This increases the current ratio.
The gross profit percentage is a measure of a company’s profitability. It is calculated by dividing gross profit by net sales. When a company purchases goods on account, it does not affect its gross profit percentage.
Here is a more detailed explanation of each option:
- Option A: Increase current ratio. This is the correct answer. When a company purchases goods on account, it increases its current assets (accounts payable) and its current liabilities (accounts payable). This increases the current ratio.
- Option B: Decrease current ratio. This is incorrect. When a company purchases goods on account, it increases its current assets (accounts payable) and its current liabilities (accounts payable). This increases the current ratio.
- Option C: Increase gross profit percentage. This is incorrect. When a company purchases goods on account, it does not affect its gross profit percentage.
- Option D: Decrease gross profit percentage. This is incorrect. When a company purchases goods on account, it does not affect its gross profit percentage.