Accounting



What is the difference between liquidity and liquidation?

Liquidity usually refers to a company’s ability to pay its bills when they become due. Liquidity is often evaluated by comparing a company’s current assets to its current liabilities. Working capital, the current ratio, and the quick ratio are referred to as liquidity ratios or short-term solvency ratios, since their calculations use some or all of the current assets and the current liabilities. Sometimes a company’s accounts receivable turnover ratio, inventory turnover ratio, and free cash flow are also used to assess a company’s liquidity.

Liquidation is a term commonly used when a company sells parts of its business for cash, or when it sells assets in order to pay debts. Liquidation may also involve the winding down or the closing of a business.

Learn more about Financial Ratios.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.




Comments

5 Responses to “What is the difference between liquidity and liquidation?”

  1. topher on December 1st, 2009 11:42 pm

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  4. Razzy on December 16th, 2009 7:30 am

    I know understand the main difference between liquidity and liquidation. This will assist me a lot in my accounting career.

  5. fabian on December 19th, 2009 1:14 pm

    please, i want to know the duties of
    a cashies and his responsibilities in the bank or companies?
    also the duties of an accounting clerk and his responsibilities in a bank or companies?
    what is the duties of a marketer in the company?

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