WINDOW DRESSING | The World of Accounting For Professional Accountants

making a company look better financially than it really is. Assume just before the end of the accounting year current assets are $100,000 and current liabilities are $50,000, representing a current ratio (current assets/current liabilities) of 2:1. To improve its current ratio for the annual report in order to attract prospective lenders, the company window-dresses by paying off $30,000 in current debt. This now makes current assets $70,000 and current liabilities $20,000, resulting in a misleading current ratio of 3.5:1. This current ratio is temporary and
deceiving because, most likely, at the beginning of the next accounting year the firm will borrow additional short-term funds that reduce the current ratio.