Multiple Choice
Under the topic of types of receivables, customers can often provide which of the following as a formal promise to pay a specific amount at a future date?
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7. Receivables and Investments
Types of Receivables
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Which of the following is considered a liquid asset?
A
Patents
B
Land
C
Equipment
D
Accounts Receivable
Verified step by step guidance1
Understand the concept of liquid assets: Liquid assets are assets that can be quickly converted into cash without significant loss in value. Examples include cash, accounts receivable, and marketable securities.
Analyze the options provided: Patents, land, and equipment are not considered liquid assets because they cannot be easily converted into cash within a short period of time.
Focus on accounts receivable: Accounts receivable represents money owed to a company by its customers for goods or services delivered. It is considered a liquid asset because it is expected to be collected in cash within a short time frame.
Compare accounts receivable to the other options: Unlike patents, land, and equipment, accounts receivable is directly tied to cash inflows and is classified as a current asset on the balance sheet.
Conclude that accounts receivable is the correct answer: Based on the definition and characteristics of liquid assets, accounts receivable is the most appropriate choice among the options provided.
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