The relationship between current liabilities and current assets is
A) useful in determining income.
B) useful in evaluating a company's liquidity.
C) called the matching principle.
D) useful in determining the amount of a company's long-term debt.

Question

Quizplus · Accepted Answer

The relationship between current liabilities and current assets is useful in evaluating a company's liquidity. Liquidity refers to a company's ability to meet its short-term financial obligations. By comparing the amount of current liabilities that a company owes within the next year to its current assets, which are assets that can be easily converted to cash within the next year, investors can assess whether the company has enough cash or assets to cover its current debts.

The Relationship Between Current Liabilities and Current Assets Is