quick ratio definition wip account
This lesson explains what a quick ratio is in accounting. The quick ratio formula is outlined and examples of how a quick ratio can be used are given. A quick ratio is a calculation used to determine how liquid a company is and how easily they could pay all of their outstanding balances, if necessary. The quick ratio, often called the acid test, is the ratio that compares the amount of current assets (less inventory) to the amount of current liabilities. The higher the quick ratio, the stronger a company is financially. Let's break this down into more applicable terms.