Which of the following is the most liquid asset?

Which of the following is the most liquid asset?

A. Cash

B. Prepaid Expenses

C. Building

D. Accounts Receivable

Answer: A. Cash

This is also true for cash as it refers to probably one of the most liquid forms with the ability to purchase any other form or tool or to discharge a liability. Liquidity can be defined in terms of the ease of converting an asset into cash without any remarkable change in the value of the asset. The former, cash is by far the most liquid of all forms of assets because of the common realization that cash is in a form of currency and hence easily accessible and usable without much effort.

Prepaid expenses are normally included in current assets but they are not as fluid as cash because the payments made in advance related to services or goods have not been used for consumption yet. Analyzing the characteristics of the fixed assets, especially the buildings, it is evident they have low mobility and market convertibility because; they cannot be readily sold and easily converted into cash within a short period of time. The accounts receivable or amounts which are due and receivable from customers also differ from the cash in terms of liquidity since they have to be collected before qualifying as cash.