If a Company Has an Acid-Test Ratio of 1

question 53

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?

---

Definitions:

Euros

The euro is the official currency of 19 of the 27 European Union countries, which together comprise the Eurozone.

Cash Receipt

The collection of money (currency, checks, electronic transfers) by a business or individual, typically documented for accounting purposes.

Compensating Balance

A minimum account balance that a borrower agrees to maintain in a bank account as a condition for receiving a loan, often to compensate the bank for the loan or to secure better loan terms.

Footnotes

Additional information provided at the end of financial statements to give more detail or provide explanations about items in the financial statements.