Assets: Meaning, Features and comparison with Liabilities (2024)

FAQs

Assets: Meaning, Features and comparison with Liabilities? ›

Assets are things that add to your company's overall value. That could be cash, tangible assets like equipment or intangible ones like your reputation in the community. Liabilities are what you owe to others, like investors or banks that issue your company a loan.

In its simplest form, your balance sheet can be divided into two categories: assets and liabilities. Assets are the items your company owns that can provide future economic benefit. Liabilities are what you owe other parties. In short, assets put money in your pocket, and liabilities take money out!

In simple terms, assets are what a company owns, and liabilities are what a company owes to other parties. Assets put money into a company, whereas liabilities take money from the company. Assets increase the value of a company's equity while liabilities decrease it.

Equity equals assets minus liabilities

The balance sheet value, also called book value, of equity is calculated by the formula: equity = assets – liabilities. Theoretically it's the value of an owner's stake in the company after all debts are repaid.

An asset is anything that has current or future economic value to a business. Essentially, for businesses, assets include everything controlled and owned by the company that's currently valuable or could provide monetary benefit in the future. Examples include patents, machinery, and investments.

A balance sheet should always balance. Assets must always equal liabilities plus owners' equity. Owners' equity must always equal assets minus liabilities. Liabilities must always equal assets minus owners' equity.

Given the financial definitions of asset and liability, a home still falls into the asset category. Therefore, it's always important to think of your home and your mortgage as two separate entities (an asset and a liability, respectively).

The five most common asset classes are equities, fixed-income securities, cash, marketable commodities and real estate.

A car is a depreciating asset that loses value over time but retains some worth. Because you can convert a vehicle to cash, it can be defined as an asset.

How to identify assets and liabilities? ›

Assets are what a business owns, and liabilities are what a business owes. Both are listed on a company's balance sheet, a financial statement that shows a company's financial health. Assets minus liabilities equal equity—or the company's net worth. Ideally, a company should have more assets than liabilities.

To be an asset, you need to be indispensable. You need to be someone that people cannot do without. Take a moment to reflect on your current role and ask yourself, "Can they do it without me easily?" If the answer is yes, then you are a liability. However, if the answer is no, then you are an asset.

Liabilities are debts or obligations a person or company owes to someone else. For example, a liability can be as simple as an I.O.U. to a friend or as big as a multibillion dollar loan to purchase a tech company.

Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. They're recorded on the right side of the balance sheet and include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses. Liabilities are the opposite of assets.

These are items that act as obligations for any business. There are non-current and current liabilities. Cash, Goodwill, Investments, Account Receivable, and Building, are examples of assets. Accounts payable, Deferred revenue, Interest payable are some examples of liabilities.

Personal assets can include a home, land, financial securities, jewelry, artwork, gold and silver, or your checking account. Business assets can include such things as motor vehicles, buildings, machinery, equipment, cash, and accounts receivable, as well as intangibles like patents and copyrights.

Some examples of assets are cash, cash equivalents, patents, trademarks, and machinery, while some examples of liabilities are debt, borrowings, taxes, and overdrafts.

Cash is regarded as a current asset for the business, since it is highly liquid in nature. It can be used for purchasing other assets required for the business.

An asset is “worldly goods” or a “benefit” — a benefit or a property item owned by you that has value and available to meet or pay for debts or commitments. A liability is a “debit” or an “obligation” — an amount of money owed or payable and can also be a financial or legal obligation that you are responsible for.