Binny Co has annual sales of $960,000 and a current ratio of 3.2:1. All of its sales are for cash and are priced at a mark-up on cost of 50%. The average cash balance is $40,000 and the inventory turnover period is 90 days. Assuming 360 days in a year, what is Binny Co’s quick ratio (acid test ratio)?
my question is why does the cash $960000 is not included in the quick ratio? when the formula of quick ratio is (current assets-inventory)/current liabilities, when the cash is a current asset
The cash balance is already included in the calculation of current assets. Therefore, the cash amount of $960,000 is already considered in the quick ratio calculation.