Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 3: Q. 12 (page 111)

Explain the concept of liquidity.

Rank the following assets from most liquid to least liquid:

a. Land

b. The inventory of a merchandiser

c. Cash in hand

d. A savings account at a local bank

e. A one-year bond

f. Ordinary shares

Short Answer

Expert verified

Cash in hand

A saving account at a local bank

The inventory of merchandiser

A one year bond

Ordinary shares

Land

Step by step solution

Achieve better grades quicker with Premium

  • Unlimited AI interaction
  • Study offline
  • Say goodbye to ads
  • Export flashcards
Start your free trial Skip

Over 22 million students worldwide already upgrade their learning with Vaia!

01

What is liquidity ? 

Liquidity refers to the ease with which assets may be converted into cash and their equivalents.

02

Explanation

The order of liquidity on the accounting records is the order in which assets are shown in relation to the time it would take to transform them into cash. As a result, cash usually comes first, followed by treasury stock, accounts receivable, inventories, and capital equipment.

In order of liquidity, assets can be organized as:

  1. Cash in hand
  2. A saving account at a local bank
  3. The inventory of merchandiser
  4. A one year bond
  5. Ordinary shares
  6. Land

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

19. The table below shows hypothetical values, in billions of dollars, of different forms of money.

a. Use the table to calculate the M1 and M2 money supplies for each year, as well as the growth rates of the M1 and M2 money supplies from the previous year.

b. Why are the growth rates of M1 and M2 so different? Explain.


2019202020212022
Currency880895900906
Money market mutual fund shares680685683692
Saving account deposits5,5005,7805,9686,105
Money market deposit accounts1,2141,2451,2741,329
Demand and checkable deposits1,000972980993
Small denomination time deposits8408711,1331,576
Traveler's check5543
3-month treasury bills1,9862,3742,4362,502

Why were people in the United States in the nineteenth century sometimes willing to be paid by check rather than with gold, even though they knew there was a possibility that the check might bounce?

In prison, cigarettes are sometimes used among inmates as a form of payment. How is it possible for cigarettes to solve the “double coincidence of wants” problem, even if a prisoner does not smoke?

In Brazil, a country that underwent a rapid inflation before 1994, many transactions were conducted in dollars rather than in reals, the domestic currency. Why?

Three goods are produced in an economy by three individuals: Good Producer Apples Orchard owner Bananas Banana grower Chocolate Chocolatier If the orchard owner likes only bananas, the banana grower likes only chocolate, and the chocolatier likes only apples, will any trade between these three persons take place in a barter economy? How will introducing money into the economy benefit these three producers?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free