Question

Which of the following items is not taken into account when computing quick ratio?

• A. Cash.
• B. Bank Balance.
• C. Bank Overdraft.
• D. Sundry Creditors.

Answer 1

The correct option is C Bank Overdraft.

Quick Ratio = [Current assets minus Inventory and prepaid expenses] /

[Current liabilities minus Bank overdraft/ Cash credit]

Here inventory is considered as less secure than other current assets and prepaid expenses as the name suggests are paid in advance for a reason, bank overdraft and cash credit are usually secured against inventory and so all these $4$ items are excluded while calculating quick ratio.