What is the difference between Assets and Liabilities

By | 19/09/2020

Difference Between Assets and Liabilities

 

In accounting, the balance sheet is divided into two parts: assets and liabilities. Resources will be assets or things that an organization claims. Some examples of assets are cash, inventories, and accounts receivable. Assets can be broken down into four types, namely: current assets, fixed assets, financial investments, and intangible assets.

1.      Current Assets

 

Current assets are short-term resources that can be converted into cash within a year. Fixed assets, on the other hand, are long-term resources like buildings and plants. The third type is financial investments which are investments and securities of other institutions. Lastly, intangible assets. Intangible assets are the ones that cannot be seen physically. This type includes copyright and patents.

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2.      Liabilities

 

Liabilities, on the other hand, are the ones that the company owes to another party. Some examples of liabilities are notes payable, account payable, and salaries payable. Liabilities can be broken down into two types: current and non-current.

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3.      Current Liabilities

Current liabilities are liabilities that can be paid within the year. Whereas non-current liabilities over a longer period of time.

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In the accounting equation (assets = liabilities + equity), liabilities and equity make up assets.

Equity represents is the total amount of money, that the owner owns when assets are liquidated and the liabilities are paid off.

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