The Acid-Test Ratio

question 42

Multiple Choice

The acid-test ratio

• A) is a quick calculation of an approximation of the current ratio.
• B) does not include all current liabilities in the calculation.
• C) does not include inventory as part of the numerator.
• D) does include prepaid expenses as part of the numerator.

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Definitions:

Time Value

The viewpoint that money on hand today is considered more valuable than the same amount received in the future, due to potential earnings.

Money

A medium of exchange that facilitates trade, acting as a unit of account, a store of value, and sometimes, a standard of deferred payment.

Present Value Factors

Multipliers used in calculating the present value of a future cash flow, taking into account the time value of money and interest rates.

Future Value Factors

Future value factors are quantitative measures used in calculating the future value of an investment based on its present value, interest rate, and time period.