When calculating the quick (acid test) ratio, which of the following is normally deducted from current assets?
A) Current liabilities
B) Cash and prepayments
C) Inventory and prepaid expenses
D) Inventory and accounts receivable

Question

Quizplus · Accepted Answer

The quick (acid test) ratio is a measure of a company's ability to pay off its current liabilities using only its most liquid assets. Therefore, inventory and prepaid expenses are normally deducted from current assets because they are not easily convertible to cash. Cash and prepayments are actually included in the quick ratio calculation, and inventory and accounts receivable are deducted in addition to inventory and prepaid expenses. Current liabilities are not deducted from current assets in the quick ratio calculation.

When Calculating the Quick (Acid Test) Ratio, Which of the Following