Question

Which one of the following represent the most liquid asset?

1. $100 accounts receivable that will be collected in full next week.
2. $100 of inventory that is sold today for $100 cash
3. $100 of inventory which is discounted and sold for $97 cash today
4. $100 of inventory which is sold today on credit for $103
5. $100 account receivable that is discounted and collected for $96 today

Answer 1

The most liquid asset among the given options is the $100 of inventory sold today for $100 cash, as it is converted into cash immediately.

Step-by-step explanation:

The question concerns the concept of liquidity, which measures how quickly a financial asset can be converted into cash or used to buy a good or service.

Among the options provided, the most liquid asset would be the one that can be converted into cash or spendable form the quickest. Cash itself is the most liquid form of asset, as it can be used immediately to buy goods or services without any need of conversion or waiting period.

Therefore, the most liquid asset from the given options is:

1. $100 of inventory that is sold today for $100 cash.

This transaction converts the inventory into cash immediately, making it the most liquid asset as compared to accounts receivable (waiting to be collected), the discounted inventory (which is a loss), or credit sales (where you also wait for receipt).