It is a method of stock control in which each item is designated by the letter A, B or C depending upon its value to the total expenditure of production materials. A goods are low volume high cost items while C goods are low cost , items. This method is also called split inventory method.

The Ratio of current liabilities to current assets excluding stocks is called acid test ratio. Also known as quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values.

Quick (Acid Test) Ratio= Cash + Markatable Securities + Accounts Receivables / Current Liabilities
Acid test ratio near to 1:1 is considered better for the company .