The Balance Sheet Test Is Merely a Comparison of Assets

question 39

True/False

The balance sheet test is merely a comparison of assets to liabilities without considering whether the debtor will be able to meet future obligations as they become due.

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Definitions:

Quick Ratio

A financial ratio that measures a company’s “instant” debt-paying ability, computed as quick assets divided by current liabilities.

Account Payable

The liability created by a purchase on account.

Solvency Analysis

An assessment of a company's ability to meet its long-term financial obligations.

Noncurrent Liabilities

Financial obligations of a company that are not due to be settled within one year, including long-term loans, bonds payable, and long-term lease obligations.