Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Quick (Acid Test) Ratio

Financial Accounting

14. Financial Statement Analysis

Ratios: Quick (Acid Test) Ratio

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following best describes how the cash ratio is calculated?

Cash and cash equivalents divided by current liabilities

Quick assets divided by total liabilities

Inventory divided by current liabilities

Current assets divided by current liabilities

Previous problemNext problem

Verified step by step guidance

Understand the concept of the cash ratio: The cash ratio is a liquidity ratio that measures a company's ability to pay off its current liabilities using only its most liquid assets, specifically cash and cash equivalents.

Identify the components of the cash ratio: The numerator consists of cash and cash equivalents, which are the most liquid assets. The denominator consists of current liabilities, which are obligations the company must settle within a year.

Write the formula for the cash ratio:

\frac{Cash + Cash Equivalents}{Current Liabilities}

Compare the given options to the formula: The correct option matches the formula, which is 'Cash and cash equivalents divided by current liabilities.'

Eliminate incorrect options: Review each alternative provided (e.g., 'Quick assets divided by total liabilities,' 'Inventory divided by current liabilities,' 'Current assets divided by current liabilities') and confirm they do not align with the cash ratio formula.