Liquidity Problems Exist for a Company When Its Acid-Test Ratio

question 4

Multiple Choice

Liquidity problems exist for a company when its acid-test ratio:

• A) Is less than the industry average.
• B) Is 1 to 1.
• C) Is higher than 1 to 1.
• D) Is lower than 1 to 1.
• E) Is less than the industry average and is lower than 1 to 1.

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Definitions:

Merchandise Purchases Budget

A financial plan that outlines the expected purchases of merchandise inventory over a certain period, considering anticipated sales and desired inventory levels.

Accounts Receivable

Outstanding payments from clients to a business for goods delivered or services rendered, awaiting settlement.

Accounts Payable

Money owed by a company to its creditors for goods and services that have been delivered or used but not yet paid for.

Accounts Payable

Money owed by a business to its suppliers shown as a liability on the company’s balance sheet.