GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Total assets
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Current assets
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Total liabilities
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Current liabilities
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Detailed explanation-1: -The quick ratio or the acid test ratio is a liquidity ratio used to measure a company’s ability to pay its short-term obligations. It is calculated by dividing the amount of cash in a company’s current assets (cash, marketable securities, accounts receivable, and inventory) by its total current liabilities.
Detailed explanation-2: -The quick ratio is the value of a business’s “quick” assets divided by its current liabilities. Quick assets include cash and assets that can be converted to cash in a short time, which usually means within 90 days.
Detailed explanation-3: -Interpreting the Quick Ratio If a company reports an acid test ratio of 1, this indicates that its quick assets equal its existing liabilities. A ratio higher than 1 indicates that the company’s quick assets are more than sufficient to cover liabilities.