Arranging Current Assets by Decreasing Liquidity

Steps:

• Define liquidity as the speed of converting assets to cash without loss.
• Rank assets: cash equivalents (bank balances) first, then physical cash, followed by receivables (collectible soon), and inventory (requires sale).
• List in order: bank, cash, trade receivables, inventory.
• Verify against choices to match decreasing liquidity sequence.

Why B is correct:

• B follows standard accounting convention where bank balances (highly liquid equivalents) precede cash in hand, then receivables, and inventory last, per liquidity principle.

Why the others are wrong:

• A: Places cash before bank, reversing the typical order of cash equivalents.
• C: Starts with inventory (least liquid), indicating increasing order.
• D: Also starts with inventory and ends with cash, fully reversing liquidity.

Final answer: B