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

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Multiple Choice

The current ratio computes the relationship between:

total assets and total liabilities

current assets and total equity

current liabilities and long-term liabilities

current assets and current liabilities

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Verified step by step guidance

Understand the concept of the current ratio: The current ratio is a financial metric used to evaluate a company's ability to pay its short-term obligations with its short-term assets. It is calculated by dividing current assets by current liabilities.

Identify the components of the formula: Current assets include items such as cash, accounts receivable, and inventory, while current liabilities include obligations like accounts payable, short-term debt, and accrued expenses.

Write the formula for the current ratio:

\frac{Current Assets}{Current Liabilities}

Interpret the result: A higher current ratio indicates better liquidity, meaning the company is more capable of meeting its short-term obligations. A ratio below 1 suggests potential liquidity issues.

Apply the formula to a given scenario: To compute the current ratio, gather the values for current assets and current liabilities from the company's balance sheet and substitute them into the formula.