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Excluded from liquid assets
- 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.
www.accountingcapital.com/differences-and-comparisons/difference-between-current-assets-and-liquid-assets/
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.
- Cash. Includes physical money (local and foreign currency) as well as the savings account and/or current account balances.
- Cash equivalents. Cash equivalents are investment securities with a maturity period not exceeding a year. Examples include treasury bills, treasury bonds, certificates of deposit, and money market funds.
- Marketable securities. Stocks, bonds, and exchange traded funds (ETFs) are examples of marketable securities with a high degree of liquidity. They can be sold easily and it usually takes just a few days to receive the cash from their sale.
- Accounts receivable. Money owed to a business by its customers for goods and services provided makes up accounts receivable. The liquidity of accounts receivable varies.
Jun 27, 2024 · In some situations, inventory may be considered a liquid asset if it has a large market with highly visible marketplaces for a product in high demand.
Quick ratio = (current assets - inventory - prepaid expenses) ÷ current liabilities. Quick ratio, also sometimes called the acid test ratio, measures your business’ ability to handle short-term obligations using only the most liquid assets.
The quick ratio, also known as the acid-test ratio, is similar to the current ratio except current assets are more narrowly defined as the most liquid assets, which exclude inventory and prepaid expenses. The conversion of inventory and prepaid expenses to cash can sometimes take more time than the liquidation of other current assets.
This is because inventory and prepaid expenses are less liquid than other assets and may take longer to convert into cash. Next, we need to identify the company’s current liabilities, which include accounts payable, short-term loans, and other obligations due within one year.
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Question: 19 All of the following are normally considered liquid assets of a company except O a. inventory O b. accounts receivable. O c. notes receivable. O d. short-term investments. There are 2 steps to solve this one.
