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What is the difference between liquidity and liquidation?

Author:
Harold Averkamp, CPA, MBA

Definition of Liquidity

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.

The following are often referred to as liquidity ratios or short-term solvency ratios since they assist in evaluating a company’s ability to pay its current obligations:

Definition of Liquidation

Liquidation is a term commonly used to describe a company selling parts of its business for cash, selling its assets in order to pay debts, or the process of winding down or closing a business.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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