What is a liquid asset?

The land, building, machinery etc. are known as non-liquid assets because it can take months for a person or company to receive cash from the sale of such assets. Unlike non-liquid assets, the liquid assets are cash in hand or the other assets which are cash equivalent. In simple words, liquid asset can be described as  cash or all those assets which can be converted to cash quickly (with little impact on its value) in the event of financial emergency. Therefore, liquid assets are also known as quick assets.

Besides cash, items such as accounts receivable, demand and time deposits, gilt edged securities are considered as liquid assets. The Stocks and marketable securities including investments in open ended mutual funds are also treated as liquid assets because these assets can be converted in to cash in a relatively short period of time, in case of money needed to meet urgent financial obligations. The reserves (other than the reserves required under law), securities under “held for trading” and “available for sale” categories are generally considered as liquid assets. However, the securities that do not have ready market, or government debt, or commercial paper, or interbank loans though with very short maturity are normally not considered as liquid assets. In some countries, precious metals (usually gold and silver) are also considered liquid assets.