acid test

1. The ratio of *current assets to *current liabilities. The acid test ratio is a quick means of assessing an entity’s *liquidity and its alternative names include the "quick" ratio and the "liquid" ratio. Only liquid current assets are used in the ratk) - normally *cash, cash equivalents (such as marketable *securities), and *accounts receivable. *Inventory is usually excluded from current assets, owing to the time delay typically required to convert inventories into cash. *Prepaid expenses are also typically excluded from liquid current assets in the ratio calculation. 2. Any critically important test. The term "acid test" derives from the use of nitric acid to test for gold. By extension, it has come to refer to the testing of any important activity.