1 answer

Why prepaid expense are not considered in quick and cash ratio?

Question:

Why prepaid expense are not considered in quick and cash ratio?

Answers

Solution:

Quick ratio = quick assets ÷ current liabilities

Quick assets are the current assets which are converted into cash in short period of time.

Current assets include prepaid expense but it is not considered as a liquid asset like cash, short term investments, accounts receivables and other marketable securities which are converted into cash with in a short period of time.

So as per above explanation prepaid expenses are considered as illiquid asset and not considered for quick asset ratio.

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