If a Company Has an Acid-Test Ratio of 1

question 35

Short Answer

If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?

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Definitions:

Insufficient Funds

Insufficient funds occur when an account does not have enough money available to cover a payment or a withdrawal, leading to a failed transaction.

Remittance Advice

A document sent by a customer to a supplier, notifying the supplier that an invoice has been paid, usually accompanying the payment.

Invoice

The bill that the seller sends to the buyer.

Bank Reconciliation

The process of matching and comparing figures from accounting records against those shown on a bank statement to ensure consistency and accuracy in financial records.