The correct answer is: D. Bank Overdraft
Current ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations. It is calculated by dividing current assets by current liabilities.
Current assets are assets that are expected to be converted into cash within one year. They include cash, accounts receivable, inventory, and short-term investments.
Current liabilities are liabilities that are due within one year. They include accounts payable, short-term notes payable, and accrued expenses.
Bank overdraft is a loan that a bank allows a customer to take when their checking account balance falls below zero. It is a short-term loan that is typically repaid within a few days or weeks.
Bank overdraft is not considered a current asset because it is not expected to be converted into cash within one year. It is also not considered a current liability because it is not due within one year.
Therefore, bank overdraft is not taken into account while computing current ratio.
Here are some additional details about each of the options:
- Sundry creditors are short-term debts that a company owes to its suppliers. They are considered current liabilities because they are due within one year.
- Sundry debtors are short-term receivables that a company has from its customers. They are considered current assets because they are expected to be converted into cash within one year.
- Furniture is a long-term asset that a company owns. It is not considered a current asset because it is not expected to be converted into cash within one year.
I hope this helps!