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Basic Question 9 of 12
Which of the following statement(s) is true?
II. The current ratio is usually greater than the quick ratio.
III. When a company writes off an account receivable through the allowance method, the current ratio decreases.
I. Another term for quick ratio is acid-test ratio.
II. The current ratio is usually greater than the quick ratio.
III. When a company writes off an account receivable through the allowance method, the current ratio decreases.
User Contributed Comments 5
| User | Comment |
|---|---|
| chenyx | under allowance method,writes off will change allowance account and asset account |
| Rotigga | The Quick Ratio eliminates less liquid assets, such as inventory and prepaid expenses, from the current ratio. But what if inventory and prepaid expenses are both zero? Then Quick Ratio = Current Ratio! Therefore we cannot say quick ratio is always > current ratio. |
| achu | Good point; guess that's why the question says "usually." |
| azramirza | can someone please explain III. What i understand is ac rec is decreased and the contra entry effects income statement and not current l/b...therefor current a/s has to decrease...? |
| johntan1979 | Net account receivables remains the same through the allowance method. No effect on current ratio. |
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Learning Outcome Statements
calculate and interpret common-size balance sheets and related financial ratios
CFA® 2025 Level I Curriculum, Volume 2, Module 3.