Which of the following statements is true regarding the relationship of the current ratio and the acid test ratio?
A)The current ratio is based on a more conservative measure of liquidity.
B)Both ratios focus on the relationship between all or part of a company's current assets and all of its current liabilities.
C)Both ratios focus on the relationship between all of a company's current assets and all or part of its current liabilities.
D)For a company which carries no inventories, the current ratio and acid test ratio will be significantly different.

Question

Quizplus · Accepted Answer

Both the current ratio and the acid test ratio measure a company's liquidity by comparing its current assets to its current liabilities. The current ratio includes all current assets, while the acid test ratio excludes inventory and other less liquid current assets.

Which of the Following Statements Is True Regarding the Relationship