Explain the Concept of Liquidity and How It Is Measured

question 71

Short Answer

Explain the concept of liquidity and how it is measured.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (direct and indirect) in the cost of a product.

Variable Costing

An accounting method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of goods sold.

Operating Income

Earnings from a company's primary business activities, excluding revenues and expenses from investments or other non-operational sources.

Variable Costing

An accounting method that only allocates variable costs to inventory, treating fixed costs as expenses of the period.