Cash assets are easily convertible economic resources that ensure financial ability for day-to-day operations. They must be convertible to cash within three months or less and include treasury bills, money market funds, and commercial paper. Companies record cash assets to help creditors and investors make decisions. An individual’s liquid assets may include checking and savings accounts, stock bonds, and short-term deposits.
Cash assets are any economic resource that can be easily converted into cash. These assets often hold high levels of liquidity and can be used to ensure the financial ability of a business or individual to conduct day-to-day operations. Cash assets are normally classified as current assets for accounting purposes, but the definition differs slightly. Current assets are normally expected to be converted to cash within an operating cycle, which is typically one year. However, cash assets are unique to current assets, as they generally must be convertible to cash within three months or less.
Such assets may include treasury bills, money market funds, commercial paper, and other assets that can be easily converted to cash. Any other financial investment or deposit that will mature in three months or less also qualifies as an asset. Assets that can be accounted for financially, but are not considered liquid assets, include property, equipment, and other investments with maturities greater than three months. Intangible assets, such as patents, trademarks, and copyrights, are also not considered liquid assets.
Companies record cash assets in an effort to help creditors, investors, and other entities make decisions regarding the company. For example, a company that has applied to a creditor for equity funds to market a new product will be more likely to receive financing if the company’s balance sheet reflects a higher liquid asset ratio than other applicants. The higher ratio of liquid assets generally reflects a higher probability that the company will be able to service the debt. Accounting for a company’s liquid assets can also allow management to determine the effects of daily decisions regarding the company’s cash flow, since assets are reported on the company’s balance sheet.
Cash assets can be calculated for an individual for the same reasons as a business, although they are generally calculated on a smaller scale. An individual’s assets can be counted to determine the probability that they will repay a loan that they might apply for. Assets may also be counted for personal reasons, such as an annual review of one’s financial portfolio. In some cases, the need to report these assets is for tax or debt purposes.
An individual’s liquid assets may include their checking and savings accounts, stock bonds, and short-term deposits. The criteria for determining a cash asset is usually the same as for businesses: the asset must be easy to convert to cash within three months. Regional laws and methods for calculating these assets may vary. Most often, this form of financial audit is performed by a professional, who generally understands local laws and accepted methods.
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