Definition of liquidation

The word "liquidation" originated in the late 19th century from the Latin word "liquidus," which means "aqueous" or "liquid." It first appeared in English in the context of chemistry, referring to the process of turning a solid substance into a liquid form. In business, the term was later adopted to describe the process of selling off assets or closing down a company, particularly during financial difficulties or bankruptcy. The term "liquidation" suggests complete settlement or payment, as liquid assets can be easily converted into cash to satisfy debts or pay creditors. The use of the word "liquid" also suggests the speed and ease with which the process can be completed, as liquid assets are generally more easily sold than illiquid assets such as real estate or equipment. In accounting, liquidation refers to the step in the financial process by which a company's creditors are paid in the event of insolvency. In a broader sense, the term "liquidation" has come to imply a complete or conclusive resolution in various contexts, from legal proceedings to environmental cleanup operations. Its association with "liquid" has also led to the creation of related terms, such as "liquidator" (the person responsible for carrying out a liquidation), "liquid asset" (a financial asset that can easily be converted into cash), and "liquidity" (the degree to which an asset can be quickly and easily converted into cash).