Assets vs Liabilities: Difference and Comparison

Assets and liabilities are two of the most important terms used in accounting and finance. Although to a layman, both the terms will seem to be the same, it is not.

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When you talk about an asset, it refers to the monetary or economic value of properties or items that a company or enterprise owns. Like any good thing in life, the value of assets also depreciates yearly.

On the other hand, the term liability refers to all the debts and obligations of a company or enterprise that are denoted in monetary or economic value.

Key Takeaways

  1. Assets are resources owned by a company that has value and can be converted into cash.
  2. Liabilities are obligations owed by a company to other parties, such as suppliers, lenders, and employees.
  3. Assets generate revenue and profits for the company, while liabilities represent business costs.

Assets vs Liabilities

An asset is something that has value and is owned by a business or individual, such as cash, investments, property, or inventory that generates income. A  liability is a financial obligation that a business or individual owes to someone else, such as a loan, accounts payable, or taxes.

Assets vs Liabilities

Examples:

  1. Assets: Accounts Receivable, Machinery, Cash, Furniture.
  2. Liability: Accounts Payable, Bank Overdraft, Outstanding Expenses.

Contrary to assets, liabilities are non-depreciable. Thus, the primary difference between assets and liabilities is that the former is depreciable and the latter is non-depreciable.

Comparison Table

Parameter of ComparisonAssetsLiabilities
DefinitionTangible or intangible things owned by an enterprise, which can be used to produce any positive monetary value, is called an asset.Any future obligations of some monetary benefits that one company or enterprise is bound to make to another due to some past events or transactions are known as a liability.
Future ValueIt tends to depreciate annually.It is non-depreciable.
Classified AsFixed Assets, Current Assets, Wasting Assets, Liquid Assets, Intangible Assets, and Fictitious Assets.Long-term Liabilities, Fixed Liabilities, Contingent Liabilities, and Current Liabilities.
Calculated AsCapital + LiabilitiesAssets – Capital

What are Assets?

In the world of financial accounting, anything that is owned by an enterprise or a business is known as an asset. To make it more elaborate, an asset is anything intangible or tangible owned by a company that can easily be used to produce some economic value.

You may even say that assets tell you about the total value of ownership that can easily be converted into money.

Assets are broadly classified as intangible assets and tangible assets. The former are nonphysical resources, and the latter are physical resources that are touched.

Tangible assets can even be further classified into fixed and current assets.

An example of fixed assets includes buildings, and an example of current assets includes various inventories. When discussing intangible assets, including copyrights, patents, and goodwill.

Examples of assets that you will find in a company balance sheet include goodwill, buildings, land, supplies, accounts receivable, petty cash, equipment, land improvements, prepaid insurance, inventory, temporary investments, and cash.

Assets

What are Liabilities?

Like an excellent side to life, there is also a wrong side to balancing everything. Keeping this in mind, you will find a list of liabilities opposite to the list of assets in a balance sheet.

When you talk about liabilities, these are all the obligations of an enterprise. These are primarily amounts a company owes its creditors for a past transaction.

Similar to assets, liabilities can also be classified into different categories. These include current, fixed, contingent, and long-term liabilities.

An example of a long-term liability includes bank loans. Fixed liabilities include proprietor’s capital; contingent liabilities include bill discounted, lawsuits, and pending investigations.

On the other hand, current liabilities include creditors, trade payables, and outstanding expenses.

Some of the examples of items that are found in the liabilities section of a balance sheet include bonds payable, lawsuits payable, customer deposits, other accrued expenses payable, wages payable, accounts payable, unearned revenues, warranty liability, income taxes payable, interest payable, salaries payable, and notes payable.

Liability

Main Differences Between Assets and Liabilities

  1. Any resources controlled by a company that can be utilized for future economic uses or advantages are known as assets. It is a result of any past transaction or event. On the other hand, liabilities are obligations of a company that the company is bound to pay off in the coming days. These are also due to some past transactions and prove to be future expenses for an enterprise.
  2. Just like the life of anything good decreases with time, the values of assets also depreciate on an annual basis. However, in terms of liabilities, no such depreciation takes place.
  3. In financial accounting, assets get debited if there is an increase. At the same time, liabilities tend to get credit if there is an increase in their amount. The opposite will happen if there is a decrease. For example, assets will get credited, and liabilities will be debited.
  4. Different classifications of assets include fixed assets, intangible assets, liquid assets, current assets, and fictitious assets. On the other hand, liabilities are classified as long-term liabilities, current liabilities, fixed liabilities, and contingent liabilities.
  5. Assets are considered good from a business perspective since they generate an inflow of cash over the coming years. At the same time, liabilities give rise to an outflow of cash over the coming years, which is considered flawed from a business point of view.
  6. While making the balance sheet, all the assets are placed first, and the liabilities are placed once all the assets are computed.
Difference Between Assets and Liabilities
References
  1. https://www.accountingcoach.com/balance-sheet/explanation
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