It is July 15, 2014. A friend, who works in the office of a local company that has four fast food restaurants, has come to you with a question. She knows you are studying accounting and asks if you could help her sort something out. She acknowledges that although she has worked for the company for three years as a general clerk, she really does not understand the accounting work she is doing.
The company has a large bank loan and, as your friend understands it, the company has agreed with the bank to maintain a current ratio (she thinks that is what it is called) of 1.8 to 1 (1.8:1). The company's yearend is June 30. The owner came to her on July 7, 2014, and asked her to issue a batch of cheques to suppliers but to date them June 30. Your friend recognizes that the cheques will have an effect on the June 30, 2014, financial statements but doesn't think the effect will be too serious.
Required
Explain to your friend what the effect of paying invoices after June 30 but dating the cheques prior to June 30 has on the current ratio. Provide an example to illustrate your explanation.