How does embezzlement generally affect the current ratio?

How does embezzlement generally affect the current ratio?

• A. Decreases
• B. Increases
• C. No change
• D. Highly volatile

Answer: (A)

The current ratio measures liquidity by comparing current assets to current liabilities. Embezzlement typically reduces current assets, usually cash, while current liabilities stay the same. With fewer current assets and unchanged liabilities, the ratio falls. The amount of decrease depends on how much cash or other current assets are stolen. While insurance recoveries or new borrowing could affect the ratio later, the immediate and general effect is a decrease.

The current ratio measures liquidity by comparing current assets to current liabilities. Embezzlement typically reduces current assets, usually cash, while current liabilities stay the same. With fewer current assets and unchanged liabilities, the ratio falls. The amount of decrease depends on how much cash or other current assets are stolen. While insurance recoveries or new borrowing could affect the ratio later, the immediate and general effect is a decrease.