What assets are not in the Quick Ratio that are in the Current Ratio? What makes...

What assets are not in the Quick Ratio that are in the Current Ratio? What makes these assets different? Please explain

Expert Solution

Quick Ratio :- Quick ratio means assets ratio which is easily convertable into cash. Quick assets include cash and cash equivalents, marketable securities and account receivable which can be used to pay off current liabilities. Quick ratio in other words is also called ACID TEST RATIO.

Assets which are included in Quick Ratio:-

Assets which can be easily converted into cash with in 90 DAYS are included in quick ratio.
Account Receivable ( Sundry Debtors) which can be collected within 90 Days

Assets which are not included in Quick ratio but are Included in Current Ratio:-

Inventories, it includes Raw Material, WIP and Finished products.
Prepaid Expense Asset

Formula for Quick ratio:-

Quick ratio= Cash & Cash Equivalents+ Marketable Securities+ Account receivable

Current Liabilities

Quick Ratio excludes inventory because it takes more time to convert into Cash.

Quick Ratio only those assets which are easily and quickly converted into cash.

A quick ratio 1 denotes that company is fully equipped with full cash to pay off its current liability

ekkarill92 answered 5 months ago

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What is the difference between current ratio and quick ratio. Explain with example ?

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