The quick ratio differs from the current ratio in that it
A) represents the amount of cash on hand instead of the amount of working capital.
B) is a stricter test of a company's ability to pay its current debts as they are due.
C) excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible default on payment.
D) is more difficult to calculate.

Question

Quizplus · Accepted Answer

The quick ratio is a stricter test of a company's ability to pay its current debts as they are due because it excludes inventories and prepaid expenses from the numerator, which are less likely to be converted into cash quickly in the case of an emergency.

The Quick Ratio Differs from the Current Ratio in That