A liquid asset can be converted to cash within a short timeframe. Such an asset can be sold with little impact on its original value. Generally, liquid assets are considered as cash. The core reason is that the value of these assets remain the same when they are sold. For any asset to be considered as a liquid asset, it needs to have many interested buyers and ownership of these assets should be transferable with ease.

Liquid assets can be converted to cash quickly during a financial crunch, which is why many individuals and organizations invest in them. Organizations can consider any assets that have a cash conversion expectation of a year or less as liquid assets. Collectively, these assets are reported as “current assets” in an organization’s balance sheet.

Now that we have understood the meaning of liquid assets, let’s look at the different types of liquid assets.

• Cash
  Cash is the most well-known type of liquid asset as it has easy accessibility. As it is legal tender, an organization can use it to repay its current liabilities. Therefore, cash has high credibility.
• Money market funds
  A money market fund is a form of mutual fund that invests specifically in highly liquid instruments, which include debt-based securities that have a high credit rating, cash equivalent securities, and cash. Such funds are for a short duration with a maturity period of less than 13 months. Therefore, these funds have a low level of risk but offer high liquidity.
• Marketable securities
  Marketable securities are financial instruments that can be converted to cash at an affordable price. These securities are considered as liquid assets because their maturity is less than a year and the rates at which they can be sold or purchased have little impact on their original prices. Marketable securities are of two types: marketable equity securities and marketable debt securities.

  Marketable equity securities can be either in the form of preferred or common stock. These are an organization’s equity stocks, which are held by some other corporation. They are listed in the holding company’s balance sheet. If there is a forecast that the stock will be traded within a year, it will be listed by the company as a current asset. However, if the company decides to hold the stock for longer than a year, it will list the equity stock as a non-current asset. Current and non-current marketable equity securities are listed at a lower value.

  Marketable debt securities, on the other hand, are a short-term bond issued by a public company and held by another organization. These securities are usually held by an organization as a substitute for cash. This makes it essential to have an established secondary market. These securities are short-term investments and are expected to be sold within a year.

Apart from the aforementioned list, the other different types of liquid assets include exchange-traded funds, accounts receivable, and treasuries.