When a company sells a finished product, all else being equal, what is the immediate impact...

When a company sells a finished product, all else being equal, what is the immediate impact on…
… the Balance Sheet (4 pt)
… the Income Statement (4 pt)
… the Direct Cash Flow Statement (4 pt)

How does this affect the Quick Ratio? Does it increase, decrease, or stay the same? Why? (2 pt)
How does this affect the Current Ratio? Does it increase, decrease, or stay the same? Why? (2 pt)

Expert Solution

Assuming Credit Sales impact is as follows :

The Balance Sheet - Assets increase
The Income Statement - Sales increases, Closing stock decreases, Balancing Figure Profit increase
The Direct Cash Flow Statement - Inflow due to Inventory sale nulled by decrease due to funds locked in receivables
How does this affect the Quick Ratio? Does it increase, decrease, or stay the same? Why?
No impact since current assets stays the same.
How does this affect the Current Ratio? Does it increase, decrease, or stay the same?
No change since current assets stay the same.

Assuming Cash Sales impact is as follows :

The Balance Sheet - Assets increase (in cash)
The Income Statement - Sales increases, Closing stock decreases, Balancing Figure Profit increase
The Direct Cash Flow Statement - Inflow due to Inventory sale - resulting in increase in cash
How does this affect the Quick Ratio? Does it increase, decrease, or stay the same? Why?
Inventory is quick asset, just like cash, hence no change.
How does this affect the Current Ratio? Does it increase, decrease, or stay the same?
Since current assets inventory is replaced by cash, no change.

jeff jeffy answered 1 year ago

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