The acid-test ratio differs from the current ratio:
A) Because it excludes prepaid expenses and inventory.
B) Because it excludes prepaid expenses and inventory and because it measures profitability.
C) Because it excludes short-term investments.
D) Because it measures profitability.
E) Because liabilities are divided by current assets.

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, excludes inventory and prepaid expenses from current assets to measure a company's ability to meet its short-term obligations with its most liquid assets.

The Acid-Test Ratio Differs from the Current Ratio