Question

When examining whether a company has underrecorded accounts payable, all of the following ratios are helpful EXCEPT: a. Quick assets ÷ Current liabilities b. Unearned revenue ÷ Accounts payable c. Accounts payable ÷ Purchases d. Accounts payable ÷ Cost of goods sold

Answer 1

Answer: Option B

Explanation:

Under recording the liability in the balance sheet such as accounts payable may become a liability fraud case. It is significant that the balance sheet has to be analysed using the acid test ratio which is quick assets/current liabilities. If this ratio has increased suddenly then it is clear that the accounts payable is understated.

Unearned revenue/ accounts payable ratio is used to determine the current liability of the company. This ratio cannot be used to find the under recorded accounts payable.