Chapter 6, Problem 3E

To determine

Liquid Assets Liquid assets are the assets that can be readily used to pay off the liabilities of the company.

Cash Equivalents: Assets which are highly liquid in terms of quick payment and near to due date are called cash equivalents.

Accounting system: An accounting system of a company can increase or decrease the performance of a company. Good accounting system is the key of managing activities in the organization.

To explain: 1. The meaning and contrast the term liquid asset and cash equivalent 2. The reason due to which companies invest their cash in cash equivalents 3. Five principles of effective cash management.