![]() ![]() As liquid assets show the amount of cash or cash equivalents, it shows the ability of a company to convert its assets into liquid form to meet the current or day-to-day operations of the company. It is important for companies to have a certain amount of liquid assets to meet the needs of the current operations of the company. Liquid assets play a key role in the case of a company’s operations. This is considered liquid because the payments must be made within a short period of time. Account ReceivablesĪccount receivables are the proceeds or payments a customer of a company will have to pay for purchasing services or goods on credit. With the increase in the value of stocks, investors can earn capital gains by selling the shares. It represents ownership corresponding to the volume of stocks owned in a company. Stock is an investment in company shares. ![]() Interest earned on an investment in various instruments that have not been received is an example of accrued income. Accrued IncomeĪccrued income refers to the form of money that has already been earned but not received yet. It creates a legal obligation on the issuer to pay the loan. Promissory NotesĪ promissory note, as the name suggests, is a financial instrument that has the written promise by an issuer to pay a specific amount of money to a payee on a determined future date. This is a highly liquid asset because the payments are short-term in nature. The government bondholder earns a fixed amount of interest against the amount invested in the bonds. Governments usually issue debt security to raise funds. Examples of cash equivalent include legal tender, treasury bills, cheques that are received but not deposited yet, etc. Cash EquivalentĬash equivalents are securities that have a short-term maturity of 90 days or less. In the context of a company, cash in hand helps in finding out the number of days for which an organization can carry on with its operating expenses with the available cash without having to rely on any other form of fund or investment. Cash in HandĬash in hand refers to the accessible cash of an organization. It is considered to be a liquid Asset because it can be withdrawn and used whenever required. Some of the most common liquid assets are the following: Cash at BankĬash at a Bank is the sum of the money that is deposited in a bank or any other financial institution. Investments may be different types of instruments such as bonds, mutual funds, money market instruments, and stocks, among others. ![]() In the case of any financial need, investments of certain types may be converted to cash quickly. Investment: Some special types of investments can also be considered Liquid as they can be liquidated easily. Cash, whether available at a Bank or in hand, is considered to be the most liquid as it can be used immediately without any special formalities. It can be utilized in real-time for paying any existing liabilities. ![]() The consolidated Liquid Assets are cash and marketable securities that can be readily converted to cash without considering the current liabilities. As the liquid assets are convertible to cash quickly, the entities holding liquid assets can meet short-term needs by using the liquid assets when the need arises. Liquid assets also allow companies and individuals to meet the current needs that may arise from time to time. This allows the holder of liquid assets the power to look for any potential investment by disinvesting in the liquid assets he holds and making any probable investment in liquid or non-liquid assets. The holder of the liquid assets has the advantage of getting cash for the assets he holds as the liquid assets can be converted to cash within the shortest possible span of time. In short, liquid assets are assets that allow the holder of the asset easy access to cash. That is investors should have some liquid assets in their portfolio so that they can have an easy hand on their money during an emergency.Ĭash is the most liquid asset followed by banking accounts, checkable accounts, short-term promissory notes, treasury bills, and other government bonds. It is advised that, at the time of investing, the investor should invest some amount in liquid assets. For example, checking accounts and banknotes are the most liquid assets.Ī liquid asset offers any individual or company access to cash at any time they want. If an asset is easy to sell or convert into cash without any loss in its value it is said to be liquid. Images Coming soon Liquid Assets: Definition ![]()
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