Question

what is the treatment for prepaid insurance and advance payment of tax for calculating quick ratio? Are these considered as quick assets?

Answer 1

Dear Student


We know that Quick Assets are those assets of a company which can be converted into cash within a within a very short period. Due to nature of Prepaid Expenses, it may be possible that they may not be utilized in a short period of time.

Therefore in the calculation of Quick assets, Prepaid Insurance and Advance payment of tax (Both are prepaid expenses) shall not be considered as quick assets.

And eventually in the calculation of the Quick ratio both the prepaid expenses shall not be accounted in quick assets.

Regards