Which statement is used to determine the acid test?

Which statement is used to determine the acid test?

• A. Income Statement
• B. Cash Flow Statement
• C. Balance Sheet
• D. Statement Of Changes In Equity

Answer: (C)

The acid test, or quick ratio, is a liquidity measure that compares the most readily convertible assets to current obligations. To calculate it you need data on current assets and current liabilities, which come from the Balance Sheet. The Balance Sheet lists what the company owns and owes at a specific date, including cash, receivables, and inventories. For the acid test you typically focus on the most liquid assets—cash, marketable securities, and accounts receivable—divided by current liabilities. Since those values are found on the Balance Sheet, that statement is what you use to determine the acid test. The other statements provide different kinds of information: profitability over a period (Income Statement), cash inflows and outflows (Cash Flow Statement), and changes in equity (Statement of Changes in Equity).

The acid test, or quick ratio, is a liquidity measure that compares the most readily convertible assets to current obligations. To calculate it you need data on current assets and current liabilities, which come from the Balance Sheet. The Balance Sheet lists what the company owns and owes at a specific date, including cash, receivables, and inventories. For the acid test you typically focus on the most liquid assets—cash, marketable securities, and accounts receivable—divided by current liabilities. Since those values are found on the Balance Sheet, that statement is what you use to determine the acid test. The other statements provide different kinds of information: profitability over a period (Income Statement), cash inflows and outflows (Cash Flow Statement), and changes in equity (Statement of Changes in Equity).