Which of the following is the correct formula for calculating the cash ratio?
A)Cash ratio = (Cash + Bank)÷ Total liabilities
B)Cash ratio = (Cash + Cash equivalents)÷ Total current liabilities
C)Cash ratio = (Cash + Cash equivalents)÷ Total assets
D)Cash ratio = (Bank + Cash equivalents)÷ Total current liabilities

Question

Quizplus · Accepted Answer

The cash ratio measures a company's ability to pay off its short-term liabilities with its most liquid assets (cash and cash equivalents). Therefore, the correct formula for calculating the cash ratio is to divide the sum of cash and cash equivalents by the total current liabilities. Choice B is the only option that correctly includes both cash and cash equivalents and divides by current liabilities.

Which of the Following Is the Correct Formula for Calculating