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Hallo,
Do you know what the explanation behind receivables being more liquid than prepayments is, the question comes from how to list them in the B/S, but still wondering what the difference is?
Thank you!
Prepayments are early payments for services to be received in the future, such as insurance premiums. It is expected that these “assets” will be realized when the service is rendered, ie insurance coverage for the period. As a result, no monetary benefit will flow to the entity. Receivables will be settled by a transfer of monetary benefit to the company so it is considered more liquid.
In my opinion, prepayments are not liquidating at all. Liquidation is the prompt availability of cash from short term investments or current assets Prepayments are already paid in cash so there is no point of prepayments to liquidate(i.e. receiving cash in the future). Hence receivables are liquid
Hi guys,
I think, I mislead you with this question, as it looks like it’s wrong.
Here is the example I have:
Arrange the following current assets in order of increasing liquidity (least to most liquid).
And the answer is: inventory, receivables, prepayments, cash.
So, looking at this answer, as the book says, the prepayments are more liquid than receivables, not the the opposite, or the book is wrong then.
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