Distinguish Between Liquidity Risk Arising from the Asset Side and the Liability

question 47

Essay

Distinguish between liquidity risk arising from the asset side and the liability side of the balance sheet.

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Definitions:

Sales Discounts

From the seller’s perspective, discounts that a seller may offer the buyer for early payment.

Normal Debit Balance

The typical balance that an account should have, where asset and expense accounts usually have debit balances.

Accounts Payable

The short-term liabilities or obligations a company owes to suppliers for goods and services purchased on credit.

Merchandise Inventory

Merchandise Inventory is the value of a company's goods that are ready for sale to customers at any given time.