Monetary assets have a fixed value and include bank balances and accounts receivable, while assets that can increase or decrease in value are not considered monetary. They are immediately available to pay off debt and are key to daily operations for households and businesses.
Monetary assets are assets that have a stated value in the person’s or business’s accounts that can, in fact, be realized for the same amount at any time. Assets of this type include current balances in various types of bank accounts, cash on hand, and the current balance found in accounts receivable on a company’s ledgers. The identifying characteristic that differentiates monetary assets from other types of assets is this fixed value that remains the same regardless of what is happening in the economy.
There are other types of financial assets that do not meet this basic qualification as monetary assets. For example, stocks and other types of securities may or may not retain the value currently recorded in the company’s accounting records. At the same time, the declared value of any business property, including any machinery used in the business’s operation, will appreciate or depreciate over time. Essentially, any type of asset that is likely to increase or decrease in value cannot be referred to as a monetary asset.
There are several advantages of monetary assets. Most obviously, the assets are immediately available to help pay off any sudden debt that may arise. For example, balances held in checking or savings accounts are not encumbered by any restrictions, making it possible to use all or a portion of those types of monetary assets when needed. This is different from assets, such as real estate, where you would need to find a buyer, assess the current market value, and then arrive at a sales price that may or may not match the value indicated on the ledgers.
Monetary assets are often considered key to the daily operations of a home or business. The available balance in cash terms is key to scheduling the payment of debt obligations. Households project the ability to meet these obligations based on the frequency of receiving income from the jobs of household members. Similarly, companies structure payment schedules for various debts based on anticipated receipts of outstanding accounts payable items, such as invoices issued to customers. By basing the operation of the business or household on the use of assets that are considered realizable at any given time, there is less chance of shortfalls occurring that seriously impede the ability to make payments to creditors as a result of a sustained loss of value. for some other type of financial asset.
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