What are Quick Assets?

//What are Quick Assets?
What are Quick Assets? 2017-10-09T08:09:41+00:00

Definition: Quick assets are assets that can be used up or realized (turned into cash) in less than one year or operating cycle. These assets usually include cash, cash equivalents, accounts receivable, inventory, supplies, and temporary investments.

What Does Quick Asset Mean?

The term quick assets is often used interchangeably with the term current assets. Current assets are referred to as quick assets because of how fast they are converted into cash.

GAAP requires that current assets or quick assets be separated from long-term assets on the face on the balance sheet. This gives investors and creditors insight as to how liquid the company is. In other words, investors and creditors can see how easily current liabilities can be paid.

Example

For instance, if the company had to pay off its debt immediately, how fast could it come up with the money? If the company had a large amount of quick assets, it would be able to pay its debts much faster than if it had to sell off long-term assets. This calculation is measured by the quick ratio.

The quick ratio is a liquidity ratio that compares quick assets to current liabilities. A quick ratio of .5 means that the company has twice as many current liabilities as quick assets. This means in order to pay off all the current liabilities, this company would have to sell off some of its long-term assets.