The relationship between current liabilities and current assets isGroup of answer choicesuseful in determining the amount of a company's long-term debt.useful in determining income.called the matching principle.useful in evaluating a company's liquidity.
Question
The relationship between current liabilities and current assets isGroup of answer choicesuseful in determining the amount of a company's long-term debt.useful in determining income.called the matching principle.useful in evaluating a company's liquidity.
Solution
The relationship between current liabilities and current assets is useful in evaluating a company's liquidity. This relationship is often measured using the current ratio (current assets divided by current liabilities), which indicates a company's ability to cover its short-term obligations. If the ratio is greater than 1, it means the company has more current assets than current liabilities and is considered to have good short-term financial health.
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