Which of the following is included in the denominator of the acid-test ratio?
A) All current liabilities except accounts payable
B) Total liabilities
C) Total current liabilities
D) Total current assets

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, only includes the most liquid current assets in the numerator, namely cash, marketable securities, and accounts receivable. Therefore, the denominator must also only include current liabilities that require quick payment, which is total current liabilities. Option A excludes accounts payable, which can often be paid later and therefore is not as immediate a liability as other current liabilities. Option B includes all liabilities, which includes long-term debt that should not factor into a quick liquidity calculation. Finally, option D includes all current assets, which includes inventory and prepaid expenses that can take longer to convert to cash and are not as liquid as the assets included in the numerator.

Which of the Following Is Included in the Denominator of the Acid-Test