The ease and quickness with which non-monetary assets (generally, all types of assets excluding monetary assets) can be converted to cash (or cash equivalents). On the scale of liquidity, current assets are the most liquid- i.e., can will be turned into cash within an accounting year (up to a year from the date of the balance sheet). Fixed assets (tangible assets) are the least liquid amongst all types of assets.
Accounting liquidity is also a measure of the ability of a debtor to pay its debts (particularly, short-term obligations such as accounts payable) on a due date (out of its liquid assets). It is typically expressed as a ratio or a percentage of current liabilities. In other words, it is the ability of the current assets to meet (pay off) the current liabilities.
Comments