Which of the Following Ratios Is Most Useful in Evaluating

question 29

Multiple Choice

Which of the following ratios is most useful in evaluating liquidity?

• A)Return on assets.
• B)Return on equity.
• C)Debt to equity ratio.
• D)Current ratio.

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Definitions:

Adjustment

A process of altering the value of accounts to more accurately reflect their true value at the end of an accounting period.

Balance Sheet Approach

A method of estimating an allowance for doubtful accounts based on the accounts receivable's ending balance, helping to present a more accurate picture of a company's financial health.

Allowance for Doubtful Accounts

An estimate of the amount of accounts receivable that may not be collectible, recorded as a contra asset account.

Uncollectible Accounts

Accounts receivable that are considered to be uncollectable from debtors, leading to them being written off as a bad debt expense.