You are in a meeting discussing the coming year-end financial statements and one of your colleagues makes

Question:

You are in a meeting discussing the coming year-end financial statements and one of your colleagues makes the following statement:

“Our current ratio will likely be just below the 2.0 required for our debt covenant from the bank. I’m not sure what we can do at this point to improve the number, but I heard that using cash to pay down accounts payable might work. I don’t see how this can affect the current ratio, as current assets and current liabilities will go down by the same amount.”

Required

Critique your colleague’s statement.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...

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