July 14, 2022
Assets and liabilities are both important things to understand in the world of business. But what's the difference between assets and liabilities? Well, assets are things that a business owns that it can use to benefit its operations, whereas liabilities are obligations that a business has to other people or organizations based on assets that the business owns.
Take, for instance, your home. If you own your home, it becomes an asset, but if you're paying for a mortgage on your home, it becomes a liability. Different people may have different ideas about what constitutes an asset or liability, but this article will clarify these two terms in the context of business accounting and let you know the difference between assets and liabilities.
In the simplest terms, assets are things that your company owns, whereas liabilities are debts that your company owes. Examples of assets include things like cash, accounts receivable, inventory, and equipment. Examples of liabilities include items such as loans, unpaid bills, and taxes owed to the government.
There are literally hundreds if not thousands of potential assets that a business can own, but the following ten are among the most common business assets:
1. Accounts Receivable
2. Cash and Cash Equivalents
3. Marketable Securities
5. Property, Plant, and Equipment (PP&E)
6. Intangible Assets (such as patents)
7. Goodwill (the value of a company's reputation or brand name)
8. Accrued Expenses (such as wages)
9. Prepaid Expenses (such as insurance premiums paid in advance)
10. Deferred Revenue
Much like assets, there are countless potential liabilities that a business could have at any given time. Here are five common examples of liabilities in accounting:
1. Unpaid payroll taxes
2. Accrued taxes, such as sales tax
3. Loans that you haven't paid back yet, or business credit card balances
4. Warranty or product liability claims against you
5. Your responsibility to pay for damages if you're found responsible in a lawsuit
A car is an asset. It's an asset because it has value, and you can use that value to make money. You can sell the car and get some cash for it, or you could trade it in for a newer model and get some cash for that. You could also keep it as a collector's item or use it for business purposes to generate revenue.
An assets vs liabilities chart is a tool that can help you manage your money and get a clearer picture of what you're up against. It shows how much money you have coming in and how much money is going out. By looking at these numbers over time, you can see if your income is growing or shrinking and if your expenses are getting higher or lower.
Assets are things that give an organization financial value. Liabilities are debts than can also have a negative impact on an individual or organization's financial value. By creating an assets vs liabilities chart, you can get a good sense of your company's overall financial wellbeing.
If you want even more insight into your company’s financial health, then be sure to check out LiveFlow, which is one of the best business accounting and finance tools available on the market.