GENERAL KNOWLEDGE

Detailed explanation-1: -Explanation: The quick ratio is a financial ratio used to gauge a company’s liquidity. The quick ratio is also known as the acid test ratio. The quick ratio compares the total amount of cash and cash equivalents + marketable securities + accounts receivable to the amount of current liabilities.

Detailed explanation-2: -Quick Ratio vs Current Ratio The quick ratio is different from the current ratio, as inventory and prepaid expense accounts are not considered in quick ratio because, generally speaking, inventories take longer to convert into cash and prepaid expense funds cannot be used to pay current liabilities.

Detailed explanation-3: -Answer and Explanation: Correct answer: Option a) increase. Explanation: When inventory is sold on account, the receivables balance increase.

Detailed explanation-4: -We know that inventory is not a quick asset so the purchase of inventory will not change quick assets but still increases the current liabilities. With the same quick assets and higher current liabilities the quick ratio will also decrease.

Detailed explanation-5: -The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are generally more difficult to turn into cash. The quick ratio considers only assets that can be converted to cash in a short period of time.