Which of the following is included in the denominator of the acid-test ratio?
A) total current liabilities less 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, is a measure of a company's short-term liquidity. It is calculated by dividing a company's total current assets minus its inventory and prepaid expenses by its total current liabilities. Therefore, only total current liabilities are included in the denominator of the acid-test ratio. Choice A is incorrect because it subtracts accounts payable from total current liabilities, which is not necessary for the calculation. Choice B is incorrect because it includes all liabilities, not just current liabilities. Choice D is incorrect because it includes all current assets, not just those that can quickly be converted into cash.

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