Assets and Liabilities
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
- Payables to suppliers
- Salaries payable
- Taxes payable
Types of Liabilities
There are two main types of liabilities, which are as follows
1 – Current Liabilities:
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.
2 – 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.