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Blushing Co. had Total Assets of $105,000, which included Cash of $30,000, Accounts Receivable of $15,000 Merchandise Inventory of $60,000. Blushing also had Total Liabilities of $95,000, which included Current Liabilities of $60,000. Blushing's acid-test ratio equals:

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The Acid-test ratio of Blushing Co,. is 1.25.

Acid-test ratio is also known as the quick ratio. It is the ratio of a firm's current assets to its current liabilities.  It is a type of liquidity ratio. Liquidity ratio measures the ability of a firm to meet its short term obligation. The higher the acid-test ratio, the higher the liquidity of the firm.

Acid test ratio = (current asset - inventory) / current liabilities

  • Current assets - inventory = $105,000 - $60,000 = $45,000
  • Current liabilities = $60,000
  • Acid-test ratio = $45,000 /  $60,000 = 0.75

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