Multiple Choice
Which of the following best describes the par value of a stock?
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1. Introduction to Accounting
Types of Accounting
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Which of the following is generally considered to be the least liquid of current assets?
A
Accounts Receivable
B
Marketable Securities
C
Inventory
D
Cash
Verified step by step guidance1
Understand the concept of liquidity: Liquidity refers to how quickly an asset can be converted into cash without significant loss of value. The more liquid an asset is, the easier it is to convert into cash.
Review the liquidity of each asset: Cash is the most liquid asset because it is already in its final form. Marketable securities are highly liquid as they can be sold quickly in financial markets. Accounts receivable are less liquid because they depend on the collection of payments from customers. Inventory is generally considered the least liquid because it requires additional steps to convert into cash, such as selling the goods and possibly incurring costs.
Compare the assets: Cash is the most liquid, followed by marketable securities, then accounts receivable, and finally inventory, which is the least liquid.
Understand why inventory is the least liquid: Inventory requires a buyer to purchase the goods, and there may be additional costs or time involved in selling the inventory. Additionally, inventory may not always be in demand, which can further delay its conversion into cash.
Conclude the reasoning: Based on the liquidity hierarchy, inventory is generally considered the least liquid of the current assets listed.
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