![]() ![]() However, their maturity duration needs to be less than 90 days to classify these instruments as liquid assets.Īccounts receivable refers to the money that is owed to the organization. As a result, these financial instruments can easily be traded on the market and converted to cash quickly.Įxamples of short-term marketable securities include shares, ETFs, index fund investments, and even bonds. Marketable securities are those financial instruments with high liquidity and shorter maturity periods. ![]() ![]() Money market instruments like commercial paper can be classified as cash equivalents.ĭifferent money market instruments can be classified on the basis of their liquidity and maturity duration, but most mature in a short time, for example, 30 days. On the other hand, cash equivalents are low-risk and low-maturity investment instruments that can easily be converted into cash quickly. The category of cash includes cash in hand and cash at the bank, which includes savings and checking account balances. The different types listed on a firm's balance sheet are as follows:Ĭash is considered the most liquid asset on the balance sheet as it is already in the form of money. Moreover, all these assets are also part of the organization's current assets, as the benefits of these resources are realized within a year (12 months). Consequently, the market for such resources includes many buyers and can be characterized by ease and security in the transfer of ownership.Ĭash and cash equivalents (money market and marketable securities) are considered the most highly liquid assets, implying that they can be converted to cash very easily and quickly. Liquid Assets = Current Assets - Inventories - Prepaid ExpensesĪs the name suggests, these assets have very high liquidity, and the marketplace for such assets has high demand and security. The formula for calculating can be shown as follows: However, the company's liquid assets are listed under the current assets heading on the balance sheet. For this reason, inventory is not included in these assets as it is not converted into cash easily. Assets such as cash, money market securities ( commercial paper, T-bills), and other marketable securities can be classified as liquid assets.Īlthough the concept of cash equivalents is somewhat similar to current assets, these assets have higher liquidity than that current assets. These assets refer to the type of assets that can be converted into cash quickly. Examples of financial assets include cash, stocks, bonds, and marketable securities owned by the individual or the organization. Moreover, another class of assets can be defined as financial assets, which are basically the sources of funding for the organization. Examples of intangible assets include patents, goodwill, licenses, trademarks, and copyrights. On the other hand, intangible assets are the ones that cannot be seen or touched and are generally the type of assets that the firm can acquire from the market. Example of physical assets includes machinery, equipment, and inventory. Tangible assets can be defined as the assets that can be physically seen or touched, and these assets are furthermore divided into subcategories, i.e., current assets and non-current assets. These resources are bought in the open market or created within the firm to generate value for the organization.Īn increase in cash flow, reduction in operating expenses, and sales boost are some of the important benefits that an asset can bring to the table for an organization. Such resources are classified as assets on the company's balance sheet, and assets can broadly be classified as tangible and intangible assets. It is expected to provide future economic benefits to the holder of the asset within a period of 90 days. Liquid asset refers to a resource that holds an economic value for an individual, corporation, or government. ![]()
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