A business or a company holds many assets which can be instantly converted into cash whenever the company or the business needs it. These assets are purchased with the generated money as revenue.
A thing that has a financial value to it is called an asset. Assets can be of different types that are easily and securely exchanged whenever required.
Current assets and liquid assets are used to determine or analyze the short-term situation of a company or a business using the ratio analysis.
Current Assets vs Liquid Assets
The main difference between current assets and liquid assets is that Currents assets are those assets that can be converted into cash within a financial year, they are usually less easily convertible than Liquid assets whereas Liquid assets are those assets that can be converted into liquid form or cash within a small span of time.
The Current assets are those assets that are either realized or paid off within an accounting year. The value of Current assets is calculated on the lower value between the cost value and the market value. current assets are converted into liquid form to pay off the current liabilities.
Liquid assets are those assets that can be converted into liquid form or cash within a small span of time. Liquid assets are converted into their liquid form or the cash form while keeping the market value.
Comparison Table Between Current Assets and Liquid Assets
| Parameters of Comparison | Current assets | Liquid assets |
| Difference | The Current assets are those assets that are either realized or paid off within an accounting year. | Liquid assets are those assets that can be converted into cash within a small span of time. |
| On financial statement | Current assets are shown on the debit side of the financial statement. | Liquid assets are a part of the current assets. |
| Convertibility to cash | Current assets are usually less easily convertible than Liquid assets. | The liquid assets are already in the liquid form or get easily converted. |
| Decision making | Current assets are used to evaluate the liquidity of the company. | Liquid assets can be used to highlight liabilities. |
| Examples | Some examples of current assets are cash in the bank, cash in hand, debtor, short-term investments, bill receivables, prepaid expenses, inventories, etc. | Some examples of Liquid assets are cash in the bank, cash in hand, cash equivalents, mutual funds, stocks, treasury bills, bonds, prepaid expenses, accrued income, Government Bonds, Marketable Securities, etc. |
What are Current Assets?
The Current assets are those assets that are either realized or paid off within an accounting year. They are also called short-term assets or circulating assets, circulating capital, or floating assets.
These are those assets that are easily converted to cash thus are very liquid or are already available in the liquid form.
Usually, in a business, current assets are converted into liquid form to pay off the current liabilities.
Current assets are shown as a different head in the financial statements. The value of Current assets is calculated on the lower value between the cost value and the market value.
Current assets are used to calculate the current ratio for a business or company. Current assets are usually less easily convertible than Liquid assets.
Short-term funds are used while financing the current assets. Current assets generate a floating charges.
Some examples of current assets are cash in the bank, cash in hand, debtor, short-term investments, bill receivables, prepaid expenses, inventories, etc.
What are Liquid Assets?
Liquid assets are those assets that can be converted into cash within a small span of time. Liquid assets are converted into their liquid form or the cash form while keeping the market value.
Liquid assets are easily convertible in the liquid form or the cash form than the current assets. Cash in hand is the most liquid asset which is present in the company or a business followed by funds which a company or a business can withdraw.
Liquid assets are a part of the current assets. This type of asset is used by buyers or businesses.
Some examples of Liquid assets are cash in the bank, cash in hand, cash equivalents, mutual funds, stocks, treasury bills, bonds, prepaid expenses, accrued income, Government Bonds, Marketable Securities, etc.
Main Differences Between Current Assets and Liquid Assets
- Current assets are those assets that are either realized or paid off within an accounting year whereas Liquid assets are those assets which can be converted into cash within a small span of time.
- Current assets are usually less easily convertible than the Liquid assets whereas The liquid assets are already in the liquid form or get easily converted.
- Some examples of current assets are cash in bank, cash in hand, debtor, short-term investments, bill receivables, prepaid expenses, inventories, etc whereas Some examples of Liquid assets are cash in bank, cash in hand, cash equivalents, mutual funds, stocks, treasury bills, bonds, prepaid expenses, accrued income, Government Bonds, Marketable Securities, etc.
- Current assets are showed on the debit side of the financial statements whereas Liquid assets are a part of the current assets.
- Current assets are used to evaluate the liquidity of the company whereas Liquid assets can be used to highlight the liabilities.
Conclusion
Current assets and liquid assets are used to analyze the financial position of a company or a business and are also used to calculate some ratio analysis to compare.
They are used to determine or analyze the short-term situation of a company or a business using some accounting ratios or using ratio analysis.
The Current assets and liquid assets are similar, but they have a slight difference between them.
Liquid assets are a part of the current assets.
These are the resources that are important for a company or a business.
References
- https://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=333863
- https://repository.vnu.edu.vn/handle/VNU_123/77056