Question

When calculating the quick ratio or "acid test" which current asset or liability is omitted

Answer 1

Answer:

Accounts receivable are sometimes omitted from the calculation because this figure is not appropriate for every industry. The ratio's denominator should include all current liabilities, which are debts and obligations that are due within one year.

Explanation:

The acid-test, or brief ratio, shows if a organization has, or can get, sufficient cash to pay its immediate liabilities, such as brief-time period debt. For most industries, the acid-test ratio must exceed 1.

If it's much less than 1, then businesses do now not have enough liquid belongings to pay their modern liabilities and should be dealt with with caution. If the acid-check ratio is lots lower than the modern ratio,

it means that a enterprise's modern belongings are surprisingly depending on inventory. however, a very excessive ratio ought to suggest that accrued cash is sitting idle, rather than being reinvested, back to shareholders, or in any other case placed to efficient use.

When calculating the quick ratio or "acid test" which current asset or liability is omitted

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Answer 2

Because this number is not suitable for all industries, accounts receivable are occasionally left out of the computation. All liabilities that are due within a year, or current liabilities, should be included in the ratio's denominator.

Explanation:

• The acid-test, also known as the quick ratio, determines if a company has enough cash on hand or may borrow it in order to cover its immediate obligations, such as short-term debt.
• Most industries require the acid-test ratio to be greater than 1.
• When it falls below 1, enterprises should exercise caution since they lack the liquid assets necessary to cover their current obligations.
• When compared to the current ratio, the acid-check ratio is significantly lower.
• It implies that inventory is surprisingly dependent on a business's current assets.
• However, a highly high percentage should indicate that accrued cash is not being effectively used, as opposed to being reinvested, returned to shareholders, or used in any other way.
• Which current asset or obligation is ignored when the quick ratio or "acid test" is calculated?

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