A problem with the current and acid test ratios is that, although they provide information about liquidity, they do not indicate
A)the dollar amounts of the differences.
B)the underlying quality of the current assets.
C)all the current assets.
D)the nature of the liabilities.

Question

Quizplus · Accepted Answer

The current and acid test ratios only provide information about liquidity, but do not indicate the underlying quality of the current assets. This means that while the ratios may show that a company has enough current assets to cover its current liabilities, it may not reveal the true value or quality of those assets. In other words, a company may have a high current ratio, but its current assets may include inventory that is difficult to sell or accounts receivable that are unlikely to be collected. Therefore, it's important to also consider other factors like inventory turnover or accounts receivable aging when evaluating a company's liquidity.

A Problem with the Current and Acid Test Ratios Is