What does current ratio and quick asset ratio decrease?
Quick Ratio will decrease when cash or accounts receivable balances decrease, without a corresponding decrease in current liabilities, or increase in a current liability without a corresponding increase in cash or accounts receivables. Some examples of this are: – Cash spent to acquire fixed assets – Cash spent to pay off a long term debt – Cash spent to pay dividends Current ratio will decrease when any current asset decreases, without a corresponding decrease in a current liability, or if a current liability increases without a corresponding increase in a current asset. Some examples of this are: – All the same reasons as described above for quick ratio – Amortization of a prepaid expense (debit to expense, credit to prepaid exp) – Recording an expense, such as payroll, or income taxes, with an increase with the credit side of the entry recorded to a current liability.
