Course Outline
Join PRO

What is the difference between the current ratio and the quick ratio?

Author:
Harold Averkamp, CPA, MBA

Definition of Current Ratio

The current ratio is the proportion, quotient, or relationship between the amount of a company’s current assets and the amount of its current liabilities. The current ratio is calculated by dividing the amount of current assets by the amount of current liabilities.

Definition of Quick Ratio

The quick ratio (or the acid test ratio) is more conservative than the current ratio in that the amount in inventories, supplies, and prepaid expenses is not included. These current assets are excluded because it is assumed that they will not be turning to cash quickly.

The quick ratio is calculated by dividing the amount of “quick assets” by 2) the amount of current liabilities. The quick ratio assumes that only the following current assets are “quick assets”:

  • Cash
  • Cash equivalents
  • Short-term marketable securities
  • Accounts receivable

Difference between Current Ratio and Quick Ratio

To illustrate the difference between the current ratio and the quick ratio, assume that a company’s balance sheet reports current assets of $60,000 and current liabilities of $40,000. Its current assets include $35,000 of inventory and $1,000 of supplies and prepaid expenses. These amounts result in the following:

  • Current ratio is 1.5 to 1 (1.5:1, or simply 1.5). This is the result of dividing $60,000 by $40,000.
  • Quick ratio is 0.6 to 1. This is the result of dividing $24,000 (which is $60,000 – $35,000 – $1,000) by $40,000.

AccountingCoach PRO has 24 blank forms to guide you in calculating and understanding financial ratios. Also included are 24 filled-in forms based on two financial statements.

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus