Which one of the following is not true of the acid test ratio?
A) It is a measure of the very short-term liquidity of a business.
B) You would expect the acid test ratio of a cash business to be lower than that for a credit business.
C) The acid test ratio will always be greater than the current ratio.
D) The higher the acid test ratio, the better the liquidity of the business.

Question

Quizplus · Accepted Answer

The acid test ratio is typically lower than the current ratio because it excludes inventory from current assets, making it a more stringent measure of liquidity.

Which One of the Following Is Not True of the Acid