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Assets and Liabilities

ArticleID 97  
Writer Isaac Thuku
Category Personal Article


When determining the wealth of an enterprise, assets and liabilities are used. An Asset is any item of economic value owned by an individual, company or a country especially that which can be converted to cash. Assets are tangible or intangible items of value.

They can either be a house, a car, money in the bank, invoices your customers haven’t paid you, real estates, cash money that you have on your pocket, stocks market, retirement accounts, life insurance, personal valuables, machinery among many more. An entrepreneur controls the assets of a business with the expectation that it will provide future benefits. The value of an asset is whatever you can sell it for.

Liabilities are any debts or payments you owe to someone. They are also financial obligations entered in the balance sheet of a business enterprise. They are debts and obligations of the business they represent as creditors claim business assets in form of notes payable or accounts payable. The two are in written promise and oral promise respectively.

A Liability can be a type of borrowing from a person to a bank for the purposes of improving a business or for personal use. The debt can be paid either during short or long term.

Responsibilities of a liability obligate one entity to another. Liabilities are tangible debts or detriments that show the obligations from previous transactions. The legal debts and obligations usually arise during the course of business operations. The obligations legally bind an individual or company to settle a debt .

The balance sheet report of liabilities shows the current and long-term liabilities. Both can be liquidated within a year. They can be mortgage, bills from your suppliers, debts for business loans, rent, taxes, salaries for employees, insurance, credit cards debts etc. Liabilities can be settled by future transfer or through the use of assets.

A house is an asset whereas the mortgage of the house is a liability. The situations sometimes change and an old, leaky house becomes a liability. Here the value of the house is considered so much. For the house to be considered an asset, it must be classy and in good condition. This will ensure that you will get offers to sell the house when you need to. When your car spends so much time and money in the garage, it automatically qualifies from an asset to a liability. A bank considers the money you deposit a liability while you take it as your asset.

Many people find themselves unable to pay their mortgage as most of the assets they used for securing the loan turned to liabilities. Equation means that the assets of a business are balanced against the liabilities and equity. Assets are equal to liabilities plus equity. Equity is where entrepreneurs have claims against the remaining assets in a business. It is very healthy for a business to have more assets than liabilities. Having fewer liabilities will decrease the operational costs of a business and increase profits. On the other hand, many assets increase the chance of getting business loans.

Assets and Liabilities, Entrepreneurship, start a business, Entrepreneur, Running a business, book keeping
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