Accountancy, asked by jamesjibin398, 9 months ago

b) Difference between Current Ratio and liquid ratio ?

Answers

Answered by bhavikaz
0

Answer:

Both the current ratio and quick ratio measure a company's short-term liquidity, or its ability to generate enough cash to pay off all debts should they become due at once. ... The quick ratio is considered more conservative than the current ratio because its calculation factors in fewer items.

Answered by AlokTyagi
0

The quick ratio (or the acid test ratio) is the proportion of 1) only the most liquid current assets to 2) the amount of current liabilities. In other words, the quick ratio assumes that only the following current assets will turn to cash quickly: cash, cash equivalents, short-term marketable securities, and accounts receivable. Hence, the quick ratio does not include inventories, supplies, and prepaid expenses.

To illustrate the difference between the current ratio and the quick ratio, let's assume that a company's balance sheet reports current assets of $60,000 and current liabilities of $40,000. Its current assets include $35,000 of inventory and $1,000 of supplies and prepaid expenses. The company's current ratio is 1.5 to 1 [$60,000 divided by $40,000]. Its quick ratio is 0.6 to 1 [($60,000 minus $36,000) divided by $40,000].

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