What Are Liquid And Illiquid Assets And Their Examples
Assets play an important role in the business for making revenue during the business cycle and enabling a business to operate smoothly. Some assets are very useful in a business because they help to pay its debts when needed and some are important to operate a business.
What Are Liquid Assets
Liquid assets are those assets that can be easily converted into cash whenever needed. These assets are very essential in a business and can be used in an emergency situation. These assets are recorded in the balance sheet under the heading of current assets.
Some of the important benefits of liquid assets:
- Flexible the business operations
- Investing in favorable sector
- And covering unexpected expenses.
Importance Of Liquid Assets
Cash plays an essential role in any business because of paying day-to-day expenses and short-term debts. Having enough cash is necessary to pay the wages, salaries, and utility bills. But normally companies did not keep much cash in the accounts instead of it they keep other liquid assets that can be converted into cash whenever needed.
Examples Of Liquid Assets
Here is the list of liquid assets that are widely used in a business:
- Cash
- Marketable Securities such as bonds and stocks
- Certificate of Deposit
- Bank Deposit
- Treasury Securities
- Inventory
- Account Receivable
- Cash Equivalents, etc.
What Are Illiquid Assets
Illiquid assets are not easily converted into cash and take a lot of time and cost to convert. These assets have a limited market so finding a buyer or seller at a market price is quite difficult in a short period.
Illiquid assets need more time, effort, and high cost to convert into cash because of the limited market. Sometimes these assets are sold at lower prices or at discounts because of limited buyers in the market.
Importance Of Illiquid Assets
However, illiquid assets are hard to convert into cash in a short time but it holds a significant place in a business and provides so many benefits to the business such as:
- Minimize the risk by diversification
- Increase the value during the inflation
- Getting tax benefits
- Provide a great return in the future
- Help in getting a loan quickly
- Have great protection, etc.
Examples Of Illiquid Assets
List of the illiquid assets that hold significant value in the business:
- Land
- Commercial Building
- Furniture
- Patents
- Trademark
- Copyrights, etc.
Liquid And Illiquid Assets FAQs
Is a savings account a liquid asset?
Yes, a savings account is an example of a liquid asset.
Are stocks considered liquid assets?
Stocks are considered liquid assets.
Which is a quick asset?
Liquid assets and quick assets are both the same terms that refer to those assets that are easily converted into cash.
What is the most liquid asset?
Cash is the most liquid asset than any other asset.
What does it mean to liquidate assets?
Selling the assets to convert into cash in the open market is said to liquidate.
Is a 401k a liquid asset?
A 401(k) is a retirement account that is not a liquid asset because of its conditions.
What is an example of a liquid asset?
Cash is the most common example of a liquid asset.
What does liquid assets mean?
Assets that have liquidity and flexibility are known as liquid assets.
Is gold a liquid asset?
Gold is one of the most liquid assets.
What are non-liquid assets?
Assets that take more time to convert into cash are termed non-liquid assets.
Is a retirement account a liquid asset?
A retirement account can be a liquid asset only when one reaches at a certain age normally 59½.
What is the difference between assets and liquid assets?
Anything that is owned and controlled by an individual, company, or entity is called an asset while liquid assets refer to those assets that are easily converted into cash.
How are liquid assets different from other assets?
Liquid assets are easy to convert into cash while other assets are difficult and required more time and cost to convert.
Is a car a liquid asset?
Car is not a liquid asset but it is a non-current asset.
Is the property a liquid asset?
Property is considered a non-current asset because of its nature.
Is home a liquid asset?
A primary residency is not an asset.