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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
ISBN: 9781337902663
Textbook Problem

How would the current and quick ratios of a service business compare?

To determine

Compare current and quick ratios of the service revenue.

Explanation

Current ratio and acid-test ratio.

Current ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.

Formula:

Current ratio=Current assetsCurrentliabilities

Acid-Test Ratio: This ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00

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