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What are Assets and Liabilities?

accounting asset

An asset can be defined as something which carries some value which can be converted in the form of cash.  Assets are usually owned by either a single person or an entire company. Governments too own assets in different forms. Assets are used to generate profitable revenue and are beneficial in some way or the other.  Assets are generally of two types which are personal assets and business assets. In simple words, assets are basically anything and everything which can be tangible or intangible and which are owned or sometimes controlled in a way to produce value.  These are basically used to produce some kind of profitable economic value and are held by the companies to which it belongs.  Thus they represent the ownership value which can eventually be converted into cash.

Liabilities on the other hand are obligation which are legally bound and are payable to a different person or an entity. Just by transferring money or goods or even some kind of services can help you in settling up liabilities. Now with the help of a credit and a decrease in debit one can easily increase their liabilities in the accounting records.  Liabilities in  general are considered to be source of funds as any certain amount which is owned by a third part is nothing but a cash which is borrowed and are used in supporting an assets base of any kind of business.  There are several examples of liabilities like accrued liabilities, notes payable, account payable, tax payable, wages payable, interest payable and even deferred revenue.

The difference between assets and liabilities

Basically one can divide a balance sheet in to two different categories which are the assets and the liabilities.

  • On one hand assets are the resources of some kind of value which are held by various companies and are meant to provide future benefits from the economic point of view. While on the other hand, liabilities are something that an individual or a company owes to one another party or parties.
  • Assets are those resources that are meant to add more to the value of a company or an individual. It can be in the form of increased equity. While on the other hand, liabilities only end up in decreasing the value and equity of a particular company. Thus the financial health or stability can be determined by the fact that the greater the assets outweigh ones liability the better the financial stability and thus stronger will the financial condition
  • A few examples of assets are cash, office equipments, machinery, investment, inventory real estate or company owned vehicles. While the examples of liabilities are wages owed, taxes owed, bank debt, mortgage debt or an amount of money owed to the suppliers.

Conclusion

Thus to sum it up one can say that liabilities are something that add up to your financial growth while liabilities simple decreases it. Thus it is always considered a better idea to have more assets than liabilities.

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