I found this response on the IMA exam package:
"The purpose of the acid test ratio is to measure
debt-paying ability using
highly liquid assets.
Items such as prepaid
insurance may be excluded as they do
not represent current
cash flow"
And this explanation from Gleim;
"the Quick (acid test) ratio
excludes inventories &
prepaids from the numerator
recognizing that those assets are
difficult to liquidate at
their stated values, the Quick ratio is thus more conservative measure than the basic current ratio"
Regards
Yasser
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Yasser Elsayed
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Original Message:
Sent: 04-21-2021 09:35 AM
From: Nupur Mahajan
Subject: Quick ratio
Can someone tell me in plain words and can give a logical answer to - Why are the prepaid expenses not included in Quick Ratio?
I know it is not included, but i cant seem to write an explanation to it.
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Nupur Mahajan
<maskemail>nupur1188@...</maskemail>
Hartford CT United States
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