Question

In: Finance

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

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

Solutions

Expert Solution

Answer:

Liquidity sources- Are the places which have liquid cash and easily accessible of liquidity. Liquidity sources are the part of liquidity management that can generate cash to meet the short term obligations of the company. Company should manage the major sources of liquidity effectively.

Primary sources of Liquidity are as following:

  1. Cash at banks
  2. Marketable securities
  3. Trade credit or Line of credit
  4. Liquidation of assets

The use of assets and liabilities for liquidity sources-

Assets- When payment is received early and inventory is sold frequently, these activities increase the liquidity in the sources. When there is delay in paying cash, cash can remain more time in the sources that can be utilized for other important work.

Liabilities- Sometimes there is drag of liquidity happens due to insufficient funds. This may be due to outdated inventory, uncollected receivables and tight credit policies. When payments are done frequently then also there is less liquidity remaining in the liquidity sources because cash is used to pay the short term obligations (payables), limit on short term line of credit etc.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Compare and contrast the use of assets and liabilities for liquidity sources.
Compare and contrast the use of assets and liabilities for liquidity sources.
Liquidity ratios are based on current assets and current liabilities. Having a liquidity ratio of 1.5...
Liquidity ratios are based on current assets and current liabilities. Having a liquidity ratio of 1.5 when the industry average is 1.9 would be deemed as having better than average liquidity relative to the industry. True or false? (Explain)
11. The following accounts are listed in order of liquidity... A. Current Assets B. Current Liabilities...
11. The following accounts are listed in order of liquidity... A. Current Assets B. Current Liabilities C. Both A and B D. Long-term assets E. none of the above 13. Retained earnings are found on the... A. Balance Sheet B. Income Statement C. Neither A nor B D. Noth A and B 15. A credit entry has the following effect on a liability account.. A. Increases B. Decreases C. No effect 17. Goldstone LLC purchases a machine on credit a...
What are the principal uses of funds (assets) and sources of funds (liabilities) of banks? Explain...
What are the principal uses of funds (assets) and sources of funds (liabilities) of banks? Explain each. What are the two potential problems inherent in our banking system? Explain each. What is a bank run? Explain. How can a bank run turn into a financial panic? Explain. How can the Federal Reserve prevent banking panics? Explain. How can a bank become insolvent? Explain. How can policy makers deal with banks/financial institutions that become insolvent? Explain.
Compare and contrast capital assets of governmental entities to capital assets of for-profit businesses. Are the...
Compare and contrast capital assets of governmental entities to capital assets of for-profit businesses. Are the same type of assets used by both? Are there any categories of capital assets that one has that the other doesn't? How does the accounting and general treatment compare? Are there any considerations of a governmental entity that may not apply to for-profit business?
compare and contrast the various sources of authoritative guidance of the professional standards or code of...
compare and contrast the various sources of authoritative guidance of the professional standards or code of conduct for the AICPA, IMA, PCAOB, IRA, IIA, and NASBA
​(Evaluating liquidity​) Aylward Inc. currently has ​$2,145,000 in current assets and ​$859,000 in current liabilities. The​...
​(Evaluating liquidity​) Aylward Inc. currently has ​$2,145,000 in current assets and ​$859,000 in current liabilities. The​ company's managers want to increase the​ firm's inventory, which will be financed by a​ short-term note with the bank. What level of inventories can the firm carry without its current ratio falling below 2.1​? The cost of the additional inventory financed with the​ short-term note is $____? (Round to the nearest dollar) ​
Compare the process of budgeting revenues and expenses with the process of budgeting assets, liabilities, and...
Compare the process of budgeting revenues and expenses with the process of budgeting assets, liabilities, and owners’ equity, and explain how this information is included in the QuickBooks Accountant budgeting process. Why is budgeting an essential practice for all organizations? What benefits does budgeting present to the organization, and what happens if an organization chooses to not budget?
Based on your studies in this course, compare and contrast between personal and position sources of...
Based on your studies in this course, compare and contrast between personal and position sources of power. In your opinion, which sources of power are most effective as important resources for leaders? Answer this question in 300 words
Compare and contrast the terms “fundraising” and “campaigns.” Determine the three largest sources of gifts and...
Compare and contrast the terms “fundraising” and “campaigns.” Determine the three largest sources of gifts and provide an example of each. Identify two gift solicitation methods and discuss the advantages and disadvantages of each.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT