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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)?
answer 0.64
100/150 * 960000 = 640000
640000 * 90/360 = 160000liabilities = (160000+40000)/3.2 = 62500
quick ratio = (200000-4000)/62500 = 0.64
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
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