The less accessible an asset is, the higher the interest rate and the more it will likely earn. One reason: Liquid assets don’t increase in value as steadily as illiquid assets can. In fact, it’s important for your business to keep a mix of liquid and illiquid assets. Some assets may not be able to be converted into cash at all.īut don’t swear off illiquid assets altogether. Assets that aren’t easily converted into cash are called illiquid or non-liquid assets. Cash and securities are the most liquid because they’re the most readily usable. Understanding liquidityĪ business’s liquidity shows that its cash flow is sufficient to pay off all of its short-term commitments. Your business’s inventory and accounts receivable are current assets that would be considered liquid because they can be transferred into cash in less than one year. Businesses can call an asset liquid if it will take less than one year to convert into cash. All liquid assets go under the current assets line on your balance sheet. When bookkeeping for your small business, your assets are divided into current and long-term, and these break down further along a scale of liquidity.
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