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Difference Between Current Assets and Liquid Assets

What is the Difference Between Current Assets and Liquid Assets?

Current Assets and Liquid Assets are both used to assess a company’s cash position and are also applied in the process of ratio analysis to compare with other related variables. They are similar, however, there is a slight difference between current assets and liquid assets.

Both current assets and liquid assets help determine the overall short-term financial situation and the ability of a company to repay its short-term commitments.

 

Current Assets

These are short-term assets owned and held by a company for 12 months (maybe less) or for a single accounting year. The intentions are to convert current assets into cash within a short period of time or to utilize them to pay off other current liabilities.

Examples of current assets include cash in hand, cash at bank, sundry debtors, short-term investments, bills receivable, inventory, prepaid expenses, etc.

  • Current assets are shown separately as a line item in the financial statements.
  • They include prepaid expenses and inventories.
  • Current assets are used to calculate the current ratio of a business.
  • In theory, they are liquid but practically current assets are not as easily convertible to cash as compared to liquid assets.
  • Current assets are also known as circulating assets, circulating capital and floating assets.

Related Article – What is Super Quick Ratio?

Liquid Assets

are short-term assets which are considered highly liquid in nature. They are cash, cash equivalents and any other assets which can practically be turned into cash in just a few days.

Quick assets are calculated as;

Current Assets – (Inventory + Prepaid Expenses)

Inventory and prepaid expenses are excluded from liquid assets as they can not be converted into cash within a few days of time.

  • Liquid assets are not shown separately in the financial statements.
  • They do not include prepaid expenses and inventories.
  • Liquid assets are used to calculate the liquidity or quick ratio of a firm.
  • In theory and practically liquid assets are more liquid and quickly convertible to cash as compared to current assets.
  • Liquid assets are also known as quick assets.

 

>Read Difference between fixed assets and current assets