Which one of the following statements concerning liquidity is correct?
A) If you can sell an asset in 18 months, it is a liquid asset.
B) If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid.
C) Trademarks and patents are highly liquid.
D) The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties.
E) Statement of financial position accounts are listed in order of decreasing liquidity.

Question

Quizplus · Accepted Answer

Liquidity refers to how quickly and easily an asset can be converted into cash without significant loss in value. The statement of financial position (balance sheet) typically lists assets in order of decreasing liquidity, starting with the most liquid assets (e.g., cash and cash equivalents) and moving towards less liquid assets (e.g., inventory, property, plant, and equipment). This arrangement helps in assessing the company's liquidity position.

Which One of the Following Statements Concerning Liquidity Is Correct