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

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, includes only the most liquid assets, such as cash and accounts receivable, and excludes inventory and prepaid expenses. The current ratio, on the other hand, includes all current assets, including inventory and prepaid expenses.

The Acid-Test Ratio Differs from the Current Ratio