Asked by Daisy Cheng on Jun 01, 2024
Verified
The acid-test ratio
A) is a quick calculation of an approximation of the current ratio.
B) does not include all current liabilities in the calculation.
C) does not include inventory as part of the numerator.
D) does include prepaid expenses as part of the numerator.
Acid-test Ratio
A financial metric that measures a company's ability to pay off its current liabilities with its quick assets, providing insight into its short-term liquidity without relying on inventory assets.
Current Liabilities
Short-term financial obligations that are due within one year or within the normal operating cycle of the business, whichever is longer.
Inventory
Inventory consists of goods and materials a business holds for the ultimate purpose of sale, production, or utilization.
- Gain the ability to calculate current and quick (acid-test) ratios for analyzing a company's short-term solvency.
Verified Answer
Learning Objectives
- Gain the ability to calculate current and quick (acid-test) ratios for analyzing a company's short-term solvency.
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