Limitation of both the current and quick ratio:
The current ratio and quick ratio are both widely used financial ratios to assess a company's liquidity and ability to meet short-term obligations. However, they have a common limitation related to the liquidity of certain assets in the calculation.

1. Accounts receivable may not be truly liquid:
Accounts receivable refers to the amounts owed to a company by its customers for goods or services provided on credit. While accounts receivable are considered current assets, they may not be truly liquid because there is a risk of non-payment or delays in collection.

Explanation:
When calculating the current ratio, both the current assets and current liabilities of a company are taken into account. Accounts receivable, being a current asset, are included in the numerator of the ratio. However, it is important to note that not all accounts receivable may be collected on time or in full. Some customers may default on their payments, and the collection process can take time. Therefore, the actual liquidity of accounts receivable may be lower than their recorded value on the balance sheet.

Similarly, when calculating the quick ratio, also known as the acid-test ratio, accounts receivable are excluded from the numerator. The quick ratio is a more stringent measure of liquidity as it only considers the most liquid assets, such as cash, marketable securities, and accounts receivable. By excluding accounts receivable, it aims to provide a more conservative assessment of a company's ability to meet short-term obligations. However, this exclusion also highlights the limitation that accounts receivable may not be truly liquid.

Impact:
The limitation of accounts receivable's liquidity affects both the current ratio and quick ratio. If a company has a significant amount of accounts receivable that are not collectible or will be collected over a long period, it can artificially inflate the ratios and provide a misleading picture of the company's liquidity position.

Conclusion:
In conclusion, the common limitation of both the current ratio and quick ratio is that accounts receivable may not be truly liquid. This means that the recorded value of accounts receivable on the balance sheet may not accurately reflect their actual liquidity, considering the risk of non-payment or delays in collection. It is important for analysts and investors to consider this limitation and assess the quality and collectability of accounts receivable when interpreting these liquidity ratios.