Liquid Assets

What are Liquid Assets?

Liquid Assets are the assets of the business which can be converted into cash within a short span of time and includes the assets such as cash, marketable securities, and money market instruments and they are shown on the asset side of the balance sheet of the company.

In simple terms, these assets can be transformed into cash rapidly, with a negligible effect on the price available in the entire market. Such assets comprise of government bonds and money market instruments. The foreign currency marketCurrency MarketFor those wishing to invest in currencies, the currency market is a one-stop solution. In the currency market different currencies are bought and sold by participants operating in various jurisdictions across the world. It is important in international trade and is also known as Forex or Foreign Exchange.read more is believed to be globally the highest liquid market across the world since a vast amount of money is being exchanged every day and thus, making it extremely difficult for a person to affect the worldwide exchange rate.

List of Liquid Assets

Savings account and cash are believed to be the greatest usual form of highest liquidity being owned by either individuals or businesses or both. However, several other assets are believed to be more liquid, easily capable of being shifted among the owners, and such assets that are well-established all through the market. Here is the complete list of liquid assets –

  1. Cash in Hand
  2. Cash in Bank
  3. Cash Equivalents
  4. Accrued Income
  5. Promissory NotesPromissory NotesA promissory note is a negotiable instrument that represents the debtor's or the writer's (the maker's) written consent to pay a promised sum to the creditor (the payee) on a specified date.read more
  6. Government Bonds
  7. Stocks
  8. Marketable SecuritiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company's balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more
  9. Accounts ReceivableAccounts ReceivableAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more
  10. Certificates of DepositCertificates Of DepositCertificate of deposit (CD) is a money market instrument issued by a bank to raise funds from the secondary money market. It is issued for a specific period for a fixed amount of money with a fixed rate of interest. It is an arrangement between the depositor of money and the bank.read more
  11. Tax Refunds

Examples

Example # 1

Example # 2

Example # 3

 Current Assets vs. Liquid Assets

Liquid Asets vs Current Assets

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Consolidated Liquid Assets

Consolidated liquid assets are securities and cash that can readily be converted into cash, less current liabilities. Its formula is  = Marketable Securities + Cash – Current Liabilities

Holding sufficient cash on hand for paying off all the debts is a significant benefit to borrowers while comforting for lenders. Therefore, analysts employ this as an extremely stringent parameter of determining the company’s capability to successfully meet its near-term debt commitments.

Why are Liquid Assets essential for the business?

While evaluating investments, and considering one’s complete financial condition, liquidity might be a key factor. Essentially, liquidity considered to be any firm’s capability to easily convert any given asset into cash. Further, it is even the capability to purchase or trade any security leaving the asset’s price unaffected.

Conclusion

Overall, the liquid assets are of utmost importance to any individual or a company as it becomes convenient while making emergency debt repayments, purchasing equipment, hiring labor, payment of taxes, and several others. Therefore, any company or an individual willing to start a business or invest strategically needs immediate cash, which is only possible if the entity has readily available cash or such securities that would fetch cash upon easy liquidation.

Liquid Assets Video

This article has been a guide to what are Liquid Assets and its meaning. Here we provide a complete list of liquid assets and how it is different from current assets. You may have a look at these articles below to learn more about Accounting –

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Comments

  1. jaleshwar prasad says

    very nice and helpful

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