What are Liquid Assets?


Liquid Assets

The term “liquid assets” is usually encountered when dealing with assets which are highly liquid in nature. These assets are either cash, cash equivalents or they can be converted into cash at a very short notice. They are also referred as Quick Assets.

Quick assets can be calculated as [Current AssetsInventoryPrepaid Expenses]. Inventory and prepaid expenses cannot be converted to cash within a very short period of time.

How to calculate Liquid Assets or Quick Assets

Examples of quick assets are;

Cash and Cash Equivalents
Short-Term Loans and Advances
Bills Receivable
Debtors – Provision for Doubtful Debts
Short-Term Investments

 

Uses and Applications of Liquid Assets

Liquid assets are used to identify liquidity of a company with the help of Liquid Ratio/Quick Ratio. This ratio helps to compare a firm’s liquid assets with its current liabilities and assess its short-term solvency.

It is considered to be a more accurate indicator of the company’s short-term debt paying capability as compared to the current ratio. The ratio is very important for banks and other financial institutions to understand the actual liquidity of the company.

A quick comparison between the current ratio and liquid ratio may reveal the extent of stock help up in the business.

 

>Read Accounting Ratios



 

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