Quick Ratio is defined as

• A. (Cash + Accounts Receivable) / Current Liabilities
• B. (Inventory + Cash) / Current Liabilities
• C. (Cash + Inventory) / Current Liabilities
• D. (Cash + Accounts Receivable) / Noncurrent Liabilities

Answer: (A)

The quick ratio measures a company’s ability to meet its short-term obligations using the most liquid assets. It focuses on assets that can be quickly converted to cash, excluding items that aren’t readily liquid. The numerator should include cash and accounts receivable because both can be turned into cash relatively quickly. Inventory is left out since it may take longer to sell and may require price concessions. The denominator uses current liabilities, which are obligations due within a year, matching the short-term focus.

Therefore, the correct definition is (Cash + Accounts Receivable) / Current Liabilities. The other options either include inventory, which isn’t as liquid, or use noncurrent liabilities in the denominator, which isn’t appropriate for this short-term measure.