Definition of Assets
In simple words, the asset can be anything tangible or intangible which you own and it has future economic value. It means that assets will provide you future economic value in the shape of money or else and it will increase your Net Worth. Your asset pays back you in the future.
Examples of Assets
- Bank balance
- Motor Car
- House /Flat
Types of Assets
We can categorize all these assets into many types according to the nature of the asset; here we will discuss some important types of assets.
Current assets are those assets that can benefit you or you can use them fully within the period of one year. In other words, current assets are those assets that you can convert into cash quickly. Current assets are also named liquid assets, cash equivalent assets, and short-term assets Examples of current assets are, cash, Bank balance, a trading stock which can be anything.
Fixed assets are those which give you benefits for more than one year and you cannot convert these assets into cash quickly. These assets are also called long-term assets. Some examples of fixed assets are House, Car, and Land, etc.
These are the assets that we can see and touch. These types of assets have a physical existence, for example, land, flat, Motor Car, etc.
Intangible assets are those assets that we cannot see or touch but they have existence. For example, the Goodwill of a company or a person, means good reputation which will matter a lot but we cannot see it, another example is copyrighted.
Definition of Liabilities
Liabilities are financial obligations that arise from an even or a contract. These are also known as accounts payable in accounting terminology. Account payables mean you have to pay for something you have acquired. When your liabilities increase it means that your net worth is decreasing. Simply assets put money in your pocket and on the contrary liabilities take the money from your pocket.
Example of Liabilities
- Bank overdraft
- Any debt
- Payable to suppliers
- Salaries payable
- Taxes payable
Types of Liabilities
There are two main types of liabilities, which are as follows
Current liabilities are those liabilities that you have to set off within the year. Examples of long-term liabilities are salaries, wages, supplies, taxes, rent, etc.
Long Term Liabilities:
Long-term liabilities are those which are payable more than one year in the future, Examples of long-term liabilities are, bonds payable, notes payable, pension payment, insurance premium, bank loan payable.
In this article you will learn about assets and liabilities. As a small business owner, one of your most important goals will be balancing your books. This means you need a good understanding of assets and liabilities in order to make the right decisions and assess the health of your business. Once the terms are defined, assets and liabilities are relatively easy to understand and the financial statements you’ve created start to make more sense! If you like this article, share this information for your friends.
In the business world, liabilities are bills or debts that are owed to creditors. Assets are property owned by the company. An example of a liability might be the company’s mortgage. An asset would be, say, the company’s office space.
A liability is when you have a debt. The example of liabilities would be, if you owe someone money, that’s a liability. If you have an insurance policy, you’re covered for liabilities. And if you have a home loan, you’re liable for the mortgage.
Assets are things that generate revenue or provide some other benefit to an organization. They can be tangible, such as buildings, furniture, computers, and vehicles, or intangible, like relationships and brand recognition.
Cash is not an asset but rather a liability as it’s something that you owe someone. It doesn’t add anything to your company’s value.
Rent A Liabilities are the money you have paid to the landlord. They are the money you owe to them. Rent is an obligation on you to pay the landlord money. Your mortgage is not considered a liability.
Assets are things you own (like your house or car), while liabilities are debts you owe (like your mortgage or car loan). In a business, the owner will have more assets than liabilities, so they have money coming in to pay off the debts.
An asset is something that can be converted into cash; while a liability is something that must be paid for before it is converted into cash. A company’s assets can be seen as its inventory, money it holds on hand, and the things it owns. Liabilities can be seen as the amount of debt it owes and the debts it will need to pay when they come due.
Current assets are items that will be used up during the year, such as cash, checking accounts, stocks, and bonds. Current liabilities are those bills that are due in the next 12 months, such as loans, credit card bills, and insurance payments.
In order to find net income, first we’ll need to find net assets. Net assets are defined as total assets minus total liabilities. The next step is to subtract the beginning balance of the account from the ending balance.