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Homework answers / question archive / Which of the following is included in calculating the current ratio, but excluded in calculating the acid-test ratio? Prepaid expenses Cash Accounts Receivable Current investments

Which of the following is included in calculating the current ratio, but excluded in calculating the acid-test ratio? Prepaid expenses Cash Accounts Receivable Current investments

Accounting

Which of the following is included in calculating the current ratio, but excluded in calculating the acid-test ratio?

  • Prepaid expenses
  • Cash
  • Accounts Receivable
  • Current investments

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The correct option is 1st "Prepaid Expenses". As we know,

Current Ratio = Total Current Assets/Total Current Liabilities

Here,

Current Assets include all current assets like cash, accounts receivables, marketable securities or prepaid expenses etc. 

Acid-test Ratio = Total Liquid Assets/Total Current Liabilities

Here,

Liquid assets include only cash, marketable securities and accounts receivables. It does not include prepaid expenses and inventory.