21/12/2018
*DIFFERENCE BETWEEN ASSET AND LIABILITIES*
In simple understandable terms
*Asset:* is anything valuable, that is not perishable and does not decline in value but rather maintains its value or appreciates in value.
*Liabilities:* is anything valuable, that is perishable or declines in value, or requires servicing expense for maintenance.
In the business world and accounting, these two terms are used often.
Assets refer to the items such as property, which the organization has legal ownership to. These items can be valued, and can be used to meet any financial obligation such as debts, commitments and the legacies.
Liabilities on the other hand are the obligations an individual has and should be met in a predetermined time in the future.
To summarize it all, an asset is that which a company legally owns, while liabilities are the items, amounts or commodities the company owes.
The two are of equal importance to businesses as they can determine the overall financial position of a company with the help of several tools such as the balance sheet.
Both Assets and Liabilities form the fundamental accounting equation:
*Assets = Liabilities + Equity*
*WHAT IS ASSETS?*
An asset is accounting is any item that a company has purchased to increase its value and improve the income. It could also be used to improve the company’s operations. The assets are recorded in a company’s balance sheet and can be classified twice; either tangible or intangible; current or fixed.
*Tangible Assets* are those which can be seen or touched by the human eye. You will find tangible assets under plant, equipment or property categories in the balance sheet of a company.
*Intangible Assets* are those which can’t be touched and are non – physical in nature. They include features such as brand – names, domain names, software or even computer database. These assets are believed to bring in more company value than the tangible which are subject to depreciation. The IAS 38 rules requires the intangible assets to be listed separately on a balance sheet and should be controlled by the company related to them.
Current assets are the items a company owns and consume or are converted to cash in a period of one year. Examples of such include trade debtors, cash at bank or in hand, prepayments.
Fixed Assets on the other hands are that which a business owns but will be used by the company for a minimum of a year without conversion into cash. Good examples of fixed assets are land, building, fixtures and motor vehicles.
*WHAT IS LIABILITIES?*
A Liability is a form of debt which is owed by a company to an external entity such as a financial institution, suppliers. This debt requires the company to give up some form of economic benefit to cover the owed amount. Liabilities can be classified into accounts payable, and are usually credited in the accounting double entry book keeping tool.
In order to sell a liability, the business is forced to sell a certain economic benefit. These economic benefits could include cash, other assets or accomplishment of a service. A current ratio is an analysis tool that determines whether a company is able to pay off their current liabilities with ease. Examples of current liabilities include debt, payables, overdrafts and short bills.
Liabilities are listed as credits on the balance sheets and are listed in terms of payment terms either current or long term. The current liabilities are all that are required to be paid in a year. All liabilities with longer payment terms are classified ad long – term. The long term liabilities include loans, tax obligations, and pension payments.
