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Compare and contrast the use of assets and liabilities for liquidity sources.

Compare and contrast the use of assets and liabilities for liquidity sources.

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Expert Solution

Liquidity means the capacity of an individual or a company to pay off the debts on time.

Liquid assets are those assets that can be converted into cash quickly without losing the value. Whereas liquid liabilities are debt obligations which a company has to pay off within a year. When a company uses assets for liquidity, there is no occurrence of debt. But when the company uses liquid liabilities, it is to be repaid on immediate basis. There arises an obligation.

So it is advised to keep sufficient liquid assets in the company to meet the liabilities. Using liquid assets further creates debt obligation.

jeff jeffy answered 2 years ago
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