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Definition of Assets
Simply put, an asset can be anything tangible or intangible that you own and has future economic value. It means that assets will provide you with future economic value in the form of money or else, and it will increase your net worth. Your asset will pay you back in the future.
Examples of Assets
- Cash
- Bank balance
- Motor Car
- House /Flat
- Jewellery
Common 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:
Current assets are those assets that can benefit you or that you can use fully within one year. In other words, current assets are those assets that you can convert into cash quickly. Current assets are also named liquid, cash equivalent, and short-term assets. Current assets include cash, bank balances, and trading stocks, which can be anything.
Fixed Assets:
Fixed assets 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 Houses, Cars, land, etc.
Tangible Assets:
These are the assets that we can see and touch. These assets have a physical existence, for example, land, flats, Motor cars, etc.
Intangible Assets:
Intangible assets are those assets that we cannot see or touch, but they have existence. For example, a company’s or a person’s goodwill means a 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 event or a contract. These are also known as accounts payable in accounting terminology. Accounts payable means you have to pay for something you have acquired. When your liabilities increase, it means that your net worth is decreasing. Simply put, assets put money in your pocket; however, liabilities take the money from your pocket.
Example of Liabilities
- Bank Overdraft
- Any debt
- Payable to suppliers
- Salaries payable
- Taxes payable
Common Types of Liabilities
There are two main types of liabilities, which are as follows:
Current Liabilities:
Current liabilities are those liabilities that you have to set off within the year. Current liabilities include salaries, wages, supplies, taxes, rent, etc.
Long-Term Liabilities:
Long-term liabilities are those that are payable for more than one year in the future. Long-term liabilities include bonds payable, notes payable, pension payments, insurance premiums, and bank loans payable.
Conclusion
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 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 with your friends.
Frequently Asked Questions
In the business world, liabilities are bills or debts owed to creditors. Assets are properties 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.
Liability is when you have a debt. An 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 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.
Yes, rent is a liability you must pay the landlord. They are the money you owe to them.
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, the money it holds on hand, and the things it owns. Liabilities can be seen as the debt it owes and the debts it must pay when they come due.
Current assets, such as cash, checking accounts, stocks, and bonds, will be used up during the year. Current liabilities are bills due in the next 12 months, such as loans, credit card bills, and insurance payments.
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 subtracting the account’s beginning balance from the ending balance.
