Question

All current assets are liquid, but all liquid assets are not current. Justify.

Answer 1

Liquid Assets are those which can be converted into money in the least possible time. For example, Cash and Cash Equivalents like Marketable Securities, Debtors, Cash at Bank, Cash in hand, etc.

Current asset of a firm refers to those assets which can be converted into cash or cash equivalents in a short period of time, i.e. less than one year. For example, Stock, Debtors, etc.

Liquid assets are a part of current assets. They just do not include stock and prepaid expenses. So, all liquid assets are current

Liquid Assets = Current Assets - Inventory - Prepaid Expenses

Cash is a current asset that is liquid as well. But stock is a current asset that is not liquid.

So, all current assets are not liquid.

Hence, this statement cannot be justified.