What does the acid test ratio exclude from current assets?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $9.99Unlock all

Enhance your Leaving Certificate Accounting skills. Master concepts with interactive questions, hints, and explanations. Ace your exam with confidence!

Multiple Choice

What does the acid test ratio exclude from current assets?

Explanation:
The acid-test ratio (quick ratio) is all about liquidity and uses only the most readily convertible current assets to cover current liabilities. It excludes inventory because stock isn’t quickly turned into cash; selling it can take time and might require price concessions. So the assets used in the quick ratio are cash, marketable securities, and receivables, not stock. Therefore, stock is the item excluded from current assets in the acid-test ratio.

The acid-test ratio (quick ratio) is all about liquidity and uses only the most readily convertible current assets to cover current liabilities. It excludes inventory because stock isn’t quickly turned into cash; selling it can take time and might require price concessions. So the assets used in the quick ratio are cash, marketable securities, and receivables, not stock. Therefore, stock is the item excluded from current assets in the acid-test ratio.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy