Assets Vs Liabilities – A Detailed Guide

If we talk about calculating the total assets of an organization or a company, then we have to build a balance sheet. The simplest balance sheets is made up of two things, assets and the liabilities. Assets put money in your bank while liabilities take money out of your bank but both increase the overall lifespan of the business.

Definitions

Asset is anything that is owned by the business which holds some benefit for the business either at the present or in the long run. Meanwhile liability is anything that a business owes to other person or organization in the near or distant future.

Examples

Examples of assets include cash, investments, machinery, vehicles and land. Meanwhile, mortgage of the building or house, accounts payable, taxes, wages of the workers and bank debt are examples of liabilities.

Types

There are several types of assets: Tangible assets; physical resources ownedlike cash, Intangible assets; resources which are not physical like trademarks, Fixed assets; cannot be converted into cash easily such as buildingsand Current assets; that can be converted into cash like stocks.

 On the other hand, liabilities are classified into two main types: Current liabilities and non-current liabilities. Current liabilities are payable within a year like billsand Non-current liabilities are payable after a year or more such as mortgage.

Cash Flow

Cash flow is the net sum of cash or cash equivalents that are transported in and out of the business. Assets are responsible for generating the inflow of cash. They bring money into the business by investments and stocks whereas liabilities generate outflow of the cash over the years. They flush the cash out of the business by paying wages and taxes.

Depreciation

Depreciation shows the decrease in the value of an asset over the time because of its usage and life expectancy. Currency, machinery, equipment, and stock are all depreciable in nature. You can use them for some time only. Liabilities are depreciable because you can use them for some time. Meanwhile assets are non-depreciable.

Equations

Assets = Liabilities + Shareholders Equity

Liabilities = Assets – Shareholders Equity

Equity is the total assets minus total liabilities and the Shareholders. Equity is the holders’ rights on the assets after all the debts have been paid.

So these are a few main differences between assets and liabilities. If you are interested in these terminologies then go at the centre of property valuation in Dubai and learn from them how to build assets. They will tell you about rics plant and machinery valuation from scratch and learn how to build assets from them.