The ratio that tells whether the entity can pay all its current liabilities if they come due immediately is the:
A)acid-test ratio.
B)accounts receivable turnover.
C)inventory turnover.
D)earnings per share.

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, measures an entity's ability to pay all its current liabilities if they come due immediately, without relying on the sale of inventory. It is calculated by subtracting inventory from current assets and dividing the result by current liabilities. A ratio of 1 or higher indicates that the entity can meet its short-term obligations.

The Ratio That Tells Whether the Entity Can Pay All