Which Ratio Measures the Ability of an Organization to Convert

question 119

Multiple Choice

Which ratio measures the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year?

• A) liquidity
• B) asset management
• C) leverage
• D) profitability

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Definitions:

Allowance Method

An accounting technique used to estimate and account for bad debts expense, building an allowance for doubtful accounts.

Bad Debts Expense

The cost associated with accounts receivable that a company cannot collect and thus writes off as a loss.

Allowance for Doubtful Accounts

A valuation account used to estimate the portion of a company's accounts receivable that may not be collectible.

Net Realizable Value

The estimated selling price in the ordinary course of business, minus any costs related to the sale or completion of goods.