Which Statement Is Not Correct

question 43

Multiple Choice

Which statement is not correct?

• A)Low liquidity ratios are not desirable
• B)High liquidity ratios are not necessarily desirable
• C)Low liquidity ratios can indicate liquidity problems
• D)A current ratio of greater than 2:1 means that an entity must have sufficient liquidity to pay its debts as they fall due

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Definitions:

Capital Reserve

Funds set aside from a company's profits for future investments or to cover anticipated liabilities or losses.

U.S.GAAP

United States Generally Accepted Accounting Principles, which are the set of accounting standards used for financial reporting in the U.S.

Accrual-Basis

An accounting method that records income and expenses when they are earned or incurred, regardless of when the cash is actually received or paid.

Cash-Basis

An accounting method where revenues and expenses are recorded when they are actually received or paid, not when they are incurred.