The Acid-Test Ratio Includes in the Numerator All

question 127

Multiple Choice

The acid-test ratio includes in the numerator all:

• A)current assets.
• B)current assets except cash.
• C)current assets except cash and prepaid expenses.
• D)current assets except prepaid expenses and inventory.

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Definitions:

Monthly Fixed Expense

Costs that do not fluctuate with the volume of production or sales, such as rent, salaries, and insurance, incurred on a monthly basis.

Target Profit

Target profit is the amount of net income a company aims to achieve for a specific period as part of its financial and operational goals.

Break-Even Sales

The amount of revenue from sales needed to cover all fixed and variable expenses, at which point a business neither profits nor loses money.

Contribution Margin Ratio

A financial metric indicating the portion of sales revenue that is not consumed by variable costs, represented as a percentage of total sales.