Multiple Choice
Which term best describes the sale of receivables by a business to a third party for immediate cash?
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7. Receivables and Investments
Types of Receivables
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Of the following, the most liquid asset is:
A
Cash
B
Notes Receivable
C
Accounts Receivable
D
Interest Receivable
Verified step by step guidance1
Understand the concept of liquidity: Liquidity refers to how quickly and easily an asset can be converted into cash without losing its value. The most liquid asset is cash itself, as it is already in its most usable form.
Analyze each option: Cash is the most liquid asset because it requires no conversion. Notes Receivable, Accounts Receivable, and Interest Receivable require additional steps to convert into cash, such as collection or maturity.
Compare the options: Notes Receivable typically involve a formal agreement and may take time to mature. Accounts Receivable represents amounts owed by customers, which require collection efforts. Interest Receivable is the interest earned but not yet received, which also requires time to collect.
Rank the liquidity: Cash is the most liquid, followed by Accounts Receivable, Interest Receivable, and Notes Receivable, in decreasing order of liquidity.
Conclude: The correct answer is Cash, as it is the most liquid asset among the options provided.
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