Question

Question 1.

Liquidity of an organisation simply refers to the extent to which it has enough liquid funds and assets that are can be readily converted into cash to meet its operating expenses as well as liabilities as and when they fall due. Current assets are regarded as the liquid assets of an organisation.

You are required to state and briefly explain any five (5) Current Assets of a business enterprise.

Answer 1

Current assets are regarded as the liquid assets of an organisation.Current assets are those assets that can be easily converted into cash and cash equivalents when the enterprise requires.The follwing are some of the examples of current assets .

• CASH

Cash is the one of the important  liquid asset of an entity, because it is essential to  solvency of every organisation. the cash balance is presented in the balancesheet. cash is used for the day-to-day affairs of the business.It normaly includes coins, currencies, bank deposit , cheques, etc

• STOCK / INVENTORY

stock is one of the most important Current assets of every enterprise. the nature of stock may vary according to the nature of businees conducted by the firm.as far as a textilesis concerned, dresses and clothes are sock. but with respect to a real estate dealer stock is the land, and this not fixed assets here.

• MARKETABLE SECURITIES

Marketable securities may termed as  liquid financial instruments that can be quickly converted into cash for a price. The marketable securities having liquidity due to the fact that, normally  maturities will be less than one year.The prices at which the Marketable securities can be bought or sold only have little effect on prices of the securities.

• CASH AND CASH EQUIVALENTS

Cash and cash equivalents means those items that reports the value of a company's assets as cash or may be converted into cash immediately. Cash equivalents include bank accounts and marketable securities and other assets, which are normally debt securities with maturities upto 90 days.

• ACCOUNTS RECEIVABLE

Accounts receivable refers to the money receivable to a company for goods or services provided but not yet paid by customers. These are considered current assets if they are expected to be paid within 1 year. if the credit terms are  longer, a partof its accounts receivables will not be included in current assets.

• PREPAID EXPENSES

Prepaid expenses means the advance payments made by an organisation for goods and services to be received in the future.These Prepaid expenses are treated as current assets. They cannot be converted into cash, but they are the payments whih is already made, it will be treated as Prepaid expenses . Prepaid expenses may be payments to insurance charges,prepaid lease rent, etc.

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