Quick Assets : Which Current Assets are not part of it ?

WHAT ARE QUICK ASSETS ?

Quick assets are those assets owned by the company which can be easily and quickly converted into cash. The term is also used to refer to assets that are already in cash form. They are considered to be the most liquid assets that a company owns. These assets provide the liquidity necessary to pay the company’s obligations when they come due.

Quick Assets commonly include –

  • Cash and cash equivalents
  • Marketable securities
  • Accounts Receivable etc,

Quick assets are mostly used by the companies to compute certain financial ratios that will help in indicating their financial health as well as liquidity position.

WHICH ASSETS ARE NOT INCLUDED IN QUICK ASSETS ?

While calculating quick assets we exclude the inventories at the end and other current assets such as prepaid expenses, advance tax, etc., from the current assets.

Inventories are not included in quick assets because the conversion of inventory into cash takes time. Similarly, prepaid expenses also do not form the part of quick assets since their adjustment takes time and they are not convertible in cash.

Cash and cash equivalents are the most liquid current assets items included in quick assets, while marketable securities and accounts receivable are also quick assets.

CALCULATION OF QUICK ASSETS

Quick assets can be calculated by using the following formula –

Quick Assets = Current assets – Inventories – Pre-paid expenses

Where,

Current Assets = Cash and Cash Equivalent + Account Receivable+ Short-Term Marketable Investments.

Quick assets are used to assess a company’s ability to satisfy its immediate bills and obligations that are due within a one-year period. This is assessed with the help of the financial ratio i.e quick ratio which is calculated by dividing the quick assets with the current liabilities of the company.

The formula for Quick Ratio is-

QUICK RATIO = Quick Assets / Current Liabilities

ADVANTAGES OF QUICK ASSETS –

The following are the main advantages of quick assets :

  • They are less risky as compared to the non-liquid assets.
  • They help in meeting the short term liabilities of the organization since they are highly liquid.
  • These assets help the investors and creditors in assessing the financial health as well as the liquidity position of a company.

Thus, in simple words, Quick Assets refers to the Assets which are liquid in nature and can be easily converted into Cash by liquidating the same in the market and also form an essential component in the financial ratio analysis of the company to showcase strong working capital.

Accounting & Finance for Banking

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