Question

The acid-test ratio Group of answer choices is a quick calculation of an approximation of the current ratio. does not include all current liabilities in the calculation. does not include inventory as part of the numerator. does include prepaid expenses as part of the numerator.

Answer 1

does not include inventory as part of the numerator

Step-by-step explanation:

The acid test ratio is somewhat similar to the current ratio. Both ratios are called liquidity ratio in which the short term assets are converted into cash to pay its short term liabilities. But the only difference in these two is

Current ratio includes current assets and current liabilities

While on the other hand, the acid test ratio or quick ratio include quick asset and current liabilities

Quick asset = Total Current assets - inventory - all other current assets

As inventory takes more time to convert into cash