Difference Between Assets and Liabilities

In accounting and business terms, students might have come across these terms, assets and liabilities. Assets comprise of such items that can be comprehended as the components of the property, which a company or an individual owns. They possess a certain worth and which can be used to meet their respective accountabilities such as commitments, legacies and debts. Liabilities refer to the accountabilities of an entity or individual, which is necessary to be accomplished.

Assets vs Liabilities

What are Assets?

The economic value of an item which is possessed by the enterprise is referred to as Assets. To put it in other words, assets are those items that can be transformed into cash or that generates income for the enterprise shortly. It is useful in paying any expenses of the business entity or debt.

What are Liabilities?

The economic value of an obligation or debt that is payable by the enterprise to other establishment or individual is referred to liability. To put it in other words, liabilities are the obligations that are rising out of previous transactions, which is payable by the enterprise, through the assets possessed by the enterprise.

This article is a ready reckoner for all the students to learn the difference between Assets and Liabilities:

 

Assets

Liabilities 

What does it mean?

Assets are items possessed by a business that will provide it benefits in future. Liabilities are items that are obligations for a business

Impact of Depreciation 

Assets are depreciable in nature Liabilities are non-depreciable in nature

Formula used

Assets = Liabilities + Shareholder’s Equity Liabilities = Assets – Shareholder’s Equity

Impact on cash flow

It is responsible for generation of cash flow for a business It is responsible for outflow of cash from a business

Different Types

The different types of assets are tangible, intangible, current and noncurrent The different types of non-current liabilities are long term(non-current) and current liabilities

Examples

Cash, Account Receivable, Goodwill, Investments, Building, etc., Accounts payable, Interest payable, Deferred revenue etc.

The above mentioned is the concept, that is elucidated in detail about ‘Difference between Assets and Liabilities’ for the Commerce students. To know more, stay tuned to BYJU’S.

Additional Reading: List of Current Assets

Frequently Asked Questions

What Are The 4 Types Of Assets?

  • Tangible Assets
  • Intangible Assets
  • Financial Asset
  • Fixed Assets

What Are The Classification Of Assets?

Assets can be classified into 2 major classes: tangible assets and intangible assets.

State 1 Difference Between Goods And Assets.

  • An economic goods is a tangible article or service that has meaning to people and can be traded for a non-negative value in the marketplace.
  • Assets incorporate various items like fixed assets, current assets and investments. Some are tangible and some are intangible.

Give 4 Examples Of Liabilities.

  • Notes Payable
  • Accounts Payable
  • Salaries Payable
  • Wages Payable

Are Assets And Expenses?

Expenses are recorded as a debit to an expense account (an income statement account) and a credit to either an asset account or a liability account, which are balance sheet accounts.

 

1 Comment

  1. KIPCHIRCHIR ALLAN

    Thanks for the explanation

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