Liquidity vs Solvency

Liquidity

Ability to convert an asset to cash (or to satisfy a current liability) or pay a current liability Referred to as the "nearness to cash" of an entity's economic resources and obligation important to users in evaluating the timing of future cash flow Important to evaluate solvency

Solvency (Pay debt)

Ability to pay debt as they become due the ability to obtain cash for business operations Important for a firm to consider s "Going Concern" any result in liquation and losses to owners and creditor Important Aspect of a FR Ablity to continue to continue operations

Prepaid

Classified as current asset because they will be consumed during the current opreating cycle or one year will not convert to cash require the use of cash in the near future had cash not already been expended they will provide future benefit BUT do not provide working capital Working Capital is a measure of the ability of the firm to pay currently maturing debt They wil not provide cash to pay currently maturing debt Have not net realized calue hard to say prepaid provide liquidatity

ST Unearned Revenue

Current Liability (Liabilities that will paid out of current assets or replaced by other current liabilities) Because will be earned by performing services during the current OC Present obligations to provide service to other entities in the future as the result of prior transactions or event Decrease WC Will not require current asset expenditure Not paid with cash or any asset Will not replaced by other CL difficult to see how a liability that will not be paid affects liquidity