The Acid-Test Ratio Is a Test of the Quality of Accounts

question 25

True/False

The acid-test ratio is a test of the quality of accounts receivable--in other words, whether they are likely to be collected.

---

Definitions:

Financial Ratios

Quantitative measures derived from financial statements used to evaluate a company's financial performance and condition.

Cash Flow Management

The process of monitoring, analyzing, and optimizing the net amount of cash receipts minus cash expenses in a business.

Accounts Receivable

Funds that customers owe to a business for products or services already provided but not yet compensated for.

Net Profit Margin Ratio

A financial metric indicating the percentage of revenue remaining as profit after all expenses, taxes, and costs have been deducted.