Asked by Kenny Wayne on May 30, 2024
Verified
The quick ratio decreases when the adjusting entry to record bad debt expense is recorded.
Quick Ratio
A liquidity indicator that evaluates a company's ability to pay its current liabilities without relying on the sale of inventory, calculated as (current assets - inventory) / current liabilities.
Bad Debt Expense
Expense associated with estimated uncollectible accounts receivable.
- Understand critical financial ratios for assessing liquidity, profitability, and leverage.
Verified Answer
BB
Buyanaa BoldbaatarMay 31, 2024
Final Answer :
True
Explanation :
The quick ratio is calculated by subtracting the value of inventories from current assets and dividing by current liabilities. Bad debt expense is a non-cash expense that reduces the value of accounts receivables, which are included in current assets. Therefore, when the adjusting entry to record bad debt expense is recorded, it reduces the value of current assets and the quick ratio decreases.
Learning Objectives
- Understand critical financial ratios for assessing liquidity, profitability, and leverage.
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