Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Which of the following is another name for the Liquid ratio of the company?

Options:

Current ratio

Quick ratio

Acid-test ratio

Both option 2 and 3

Correct Answer:

Both option 2 and 3

Explanation:

Quick or Liquid Ratio : It is the ratio of quick (or liquid) asset to current liabilities. It is expressed as Quick ratio = Quick Assets : Current Liabilities.
 The quick assets are defined as those assets which are quickly convertible into cash. While calculating quick assets we exclude the inventories at the end and other current assets such as prepaid expenses, advance tax, etc., from the current assets. Because of exclusion of non-liquid current assets it is considered better than current ratio as a measure of liquidity position of the business. It is calculated to serve as a supplementary check on liquidity position of the business and is therefore, also known as ‘Acid-Test Ratio’.