Question

Which of the following ratios does not represent some form of comparison between accounts in current assets and accounts in current liabilities? Question 20 options: a) Current ratio b) Cash ratio c) Acid-test ratio d) Working capital e) Merchandise inventory turnover.

Answer 1

The ratio that does not represent some form of comparison between account in current assets and account in current liabilities is :-

Answer :- e) Merchandise inventory turnover

Explanation :-

The formula of merchandise inventory turnover ratio is :- cost of goods sold / average inventoy

So, we can see that , this formula is not comparing current asset with current liabilities so, option e) merchandise inventory turnover is the answer .

Explanation for rejection of other points :-

Current ratio is calculated by dividing current asset by the current liabilities , so, option a is wrong .

Cash ratio is calculated by dividing cash & cash equivalents by the current liabilities . So, option b is also wrong .

Acid test ratio is calculated by dividing ( current asset - inventory ) by current liabilities, so, option c is also wrong .

Working capital ratio is calculated by dividing total current asset by total current liabilities . So, option d is also wrong .

So, the right option is e) merchandise inventory turnover