Question

What is the order of liquidity in accounting?

Answer 1

Order of liquidity in accounting refers to the arrangement of assets and liabilities in a balance sheet based on their liquidity.

The assets are placed according to the ease with which they can be converted into cash while liabilities are placed according to the degree of urgency in making the payment.

Therefore, current assets like cash and cash equivalents are placed first in assets followed by fixed assets while current liabilities like bank overdraft, bills payable are placed first followed by loans, mortgages etc.

Also read:

• Marshalling of Assets and Liabilities
• Accounting MCQs
• What Is the Balance Sheet Equation
• Balance Sheet Vs Consolidated Balance Sheet

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