What does the acid test ratio exclude from current assets?

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Multiple Choice

What does the acid test ratio exclude from current assets?

Explanation:
The acid-test ratio (quick ratio) is all about liquidity and uses only the most readily convertible current assets to cover current liabilities. It excludes inventory because stock isn’t quickly turned into cash; selling it can take time and might require price concessions. So the assets used in the quick ratio are cash, marketable securities, and receivables, not stock. Therefore, stock is the item excluded from current assets in the acid-test ratio.

The acid-test ratio (quick ratio) is all about liquidity and uses only the most readily convertible current assets to cover current liabilities. It excludes inventory because stock isn’t quickly turned into cash; selling it can take time and might require price concessions. So the assets used in the quick ratio are cash, marketable securities, and receivables, not stock. Therefore, stock is the item excluded from current assets in the acid-test ratio.

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