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Overview of Quick Assets
Definition of
Quick Assets
What are Quick Assets? Quick Assets, also known as acid-test assets, are current assets that a company can convert into cash very quickly, typically within 90 days or less, with minimal risk of value loss. These are the most liquid assets a business owns, excluding inventory (which may take longer to sell and convert to cash) and prepaid expenses (which are not convertible to cash). Common examples of quick assets include cash, cash equivalents (like money market accounts), marketable securities (short-term investments), and accounts receivable.
Activities Related to
Quick Assets
Here is a list of Quick Asset related activities:Â Calculating the Quick Ratio (Acid-Test Ratio) by summing quick assets and dividing by current liabilities, Managing cash and cash equivalents effectively, Monitoring and collecting accounts receivable promptly, Investing surplus cash in short-term marketable securities, Assessing a company's immediate ability to pay its short-term debts, and Reporting these assets on the Balance Sheet as part of current assets.
The Importance of
Quick Assets
Quick Assets are important because they provide a more stringent measure of a company's liquidity than total current assets. By excluding less liquid items like inventory, the total of quick assets gives a better indication of a company's ability to meet its immediate financial obligations without having to sell off inventory, which might require discounts or a longer sales cycle. Lenders and creditors often look at quick assets (via the Quick Ratio) to assess short-term financial health and the risk of default.
Key Aspects of
Quick Assets
High Liquidity
Easily and quickly convertible into cash, typically within 90 days.
Excludes Inventory
A key distinction from general current assets; inventory is not considered a quick asset due to the time it may take to sell.
Used in Quick Ratio
The sum of quick assets is the numerator in the Quick Ratio (Acid-Test Ratio), a measure of immediate liquidity.
Components
Typically include cash, cash equivalents, marketable securities (short-term investments), and accounts receivable.
Concepts Related to
Quick Assets
Quick Assets are a subset of current Assets, specifically those that are highly liquid. They are used to calculate Liquidity Ratios, most notably the Quick Ratio (also known as the Acid-Test Ratio). Key components include cash, marketable securities, and Accounts Receivable. They are presented on the Balance Sheet. Inventory is a current asset but is specifically excluded from quick assets.
Quick Assets
in Action:
The Adventures of Coco and Cami
Coco and Cami are looking at how quickly they could pay off an urgent bill. They have cash in the bank, some money customers owe them, but also a lot of sandwich bread and coffee beans.
Professor A explains Quick Assets – the things they own that can be turned into cash really fast, like their cash and the money customers owe, but not necessarily their entire inventory of ingredients.