The Acid-Test Ratio Differs from the Current Ratio

question 318

Multiple Choice

The acid-test ratio differs from the current ratio

• A)Because it excludes prepaid expenses and inventory
• B)Because liabilities are divided by current assets
• C)Because it measures profitability
• D)Because it excludes short-term investments
• E)Because it excludes prepaid expenses and inventory and because it measures profitability

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Definitions:

Marginal Revenue

The additional income generated from selling one more unit of a good or service.

Total Revenue

Total Revenue is the full amount of income generated by the sale of goods or services before any costs are deducted.

Perfectly Elastic Demand

Demand in which quantity drops to zero at the slightest increase in price.

Ceteris Paribus

A Latin phrase meaning "all other things being equal," used in economics to analyze the effect of one variable change while holding others constant.