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.
Examples of quick assets are;
|Cash and Cash Equivalents|
|Short-Term Loans and Advances|
|Debtors – Provision for Doubtful Debts|
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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