Which of the following is false regarding the current ratio compared to the acid test ratio?
A) The current ratio is less strict and more general.
B) The acid test ratio measures the firm's ability to pay its debts over a shorter period of time.
C) Both ratios use asset accounts, but the acid test ratio does not use inventories.
D) Both ratios exclude prepaid expenses in the numerator.

Question

Quizplus · Accepted Answer

The current ratio and the quick or acid test ratio have the same denominator-current liabilities. They differ in that the numerator of the acid test ratio excludes inventories, making the quick ratio more specific. Prepaid expenses are current assets, but they are excluded in the acid test ratio because of the difficulty of converting them to cash.

Which of the Following Is False Regarding the Current Ratio