The acid test ratio eliminates ________ from its calculation,because it is considered the least liquid of the current assets.
A) bank bills
B) accounts receivable
C) government securities
D) inventory

Question

Quizplus · Accepted Answer

Inventory is considered the least liquid of the current assets as it takes time to sell and convert into cash. Therefore, it is eliminated from the calculation of the acid test ratio to provide a more accurate measure of a company's ability to pay off its short-term obligations with its most liquid assets. Bank bills, accounts receivable, and government securities are all included in the calculation of the acid test ratio as they are generally more easily converted into cash.

The Acid Test Ratio Eliminates ________ from Its Calculation,because It