Legal Definitions - quick asset

A quick asset is a type of company resource that can be converted into cash very quickly, typically within 90 days, without significant loss of value. These assets are crucial for assessing a business's immediate ability to meet its short-term financial obligations, such as paying suppliers or employee salaries. Unlike other assets like inventory or real estate, quick assets are either already in cash form or are expected to become cash very soon. Common examples include cash on hand, money in bank accounts, short-term investments that can be easily sold, and accounts receivable (money owed to the company by customers for goods or services already delivered).

• Example 1: A Small Consulting Firm

  Imagine "Innovate Solutions," a consulting firm. They have $50,000 in their business checking account and $30,000 in outstanding invoices from clients who received services last month and are expected to pay within 30 days. These $80,000 represent Innovate Solutions' quick assets.

  How this illustrates the term: The cash in the bank is immediately available. The outstanding invoices (accounts receivable) are expected to be converted into cash very soon, typically within the standard payment terms, making them readily accessible to cover immediate expenses like payroll or rent.

• Example 2: A Manufacturing Company with Short-Term Investments

  Consider "Global Gears Inc.," a large manufacturing company. Besides their operational cash, they have invested $2 million in highly liquid government bonds that mature in three months. These bonds can be sold on the open market at any time with minimal transaction costs and price fluctuations.

  How this illustrates the term: The government bonds are considered quick assets because they can be easily and rapidly converted into cash without significant loss of value, providing Global Gears Inc. with a readily available source of funds if needed for unexpected short-term financial demands.

• Example 3: An Online Retailer's Customer Payments

  "Trend Threads," an online clothing retailer, processes most of its sales through credit card payments. At the end of the day, they have $15,000 in credit card transactions that have been approved but not yet deposited into their bank account, a process that usually takes 1-2 business days. They also have $5,000 in a PayPal account that can be transferred to their bank instantly.

  How this illustrates the term: Both the pending credit card deposits and the PayPal balance are quick assets. They represent money that is virtually guaranteed to become cash in the company's bank account within a very short timeframe, allowing Trend Threads to quickly access these funds to manage its daily operations.