Which of the Following Is True Regarding the Relationship of the Current

question 116

Multiple Choice

Which of the following is true regarding the relationship of the current ratio to the quick ratio?

• A)The current ratio is based on a more conservative measure of liquidity.
• B)Both focus on the relationship between part or all of the firm's current assets and all of its current liabilities.
• C)Both focus on the relationship between all of the firm's current assets and part or all of its current liabilities.
• D)For a company in the service industry,the current ratio and quick ratio will be significantly different.

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Definitions:

Variable Cost

Costs that change in proportion to the level of activity or production volume, such as materials and labor.

Fixed Costs

Costs that remain constant regardless of how much is produced or sold, including expenses like rent, salaries, and insurance.

Net Income

The amount of profit that remains after all operating expenses, taxes, and costs have been subtracted from total revenue, essentially the bottom line.

Break-Even Point

The point at which total costs and total revenue are equal, resulting in neither profit nor loss.