What are assets and liabilities
Assets are what generate income. Buildings, apartments, cars, money in accounts, etc., if they work and make a profit. On the contrary, liabilities are expenses that ensure the operation of the enterprise. The relationship between expenses and income is reflected in the balance sheet. This is perhaps the most difficult and important subject in accounting to understand.
Difference between liabilities and assets
A simple and ingenious example is shown in the cartoon “Three from Prostokvashino”. Remember?
The cow was rented. She gives milk - this is an asset. She also calved. The rent for it is a liability. We bought a cow and a calf and reduced our liabilities. There was one animal, now there are two. Both will be profitable. By the way, a ready-made version of the business model! But this is so, schematically. Let me look at the problem deeper.
Are own shares an asset or a liability?
There is an opinion that if a company can sell its securities and get money for them, then these are assets. Not certainly in that way. The result of the sale will indeed be the proceeds. They can be used for different purposes. And the shares themselves are a liability. They act as a mechanism for obtaining funds.
Interaction of assets and liabilities
Here is an everyday example: a citizen bought a car to go to work and to his dacha. Here he acquired a liability. The car immediately lost value because... It became used and requires expenses for refueling, repairs, storage, etc. Then this man decided to work on his car, receiving a fee for it. Then the car becomes a core asset. With its help, a person makes a profit. At enterprises the situation looks similar.
Assets and liabilities in financial statements
These are the main indicators that allow you to almost completely evaluate the activities of the enterprise. They are correlated with each other and are reflected in the form of a table. Simply put, these are items in the general balance sheet – the enterprise’s report for a certain period of time.
Assets and liabilities according to Kiyosaki
This gentleman has published 26 books on financial topics. His brilliant work “Rich Dad Poor Dad”, along with other works, is sold all over the world.
The writer’s main thesis can be formulated as follows: “Assets bring you money, whether you work or not. Liabilities take your money, whether you work or not.”
Of course, these are the basics of economics “for dummies.” This approach is too simplistic and controversial. However, in everyday life this is quite acceptable. It's more difficult with companies. Judge for yourself.
The language of financial literacy
To be financially successful, you need to know financial language and communicate in it as often as possible. You should understand the basic terms, especially if they can be applied in your field of activity. At least when managing a personal and family budget.
For more information on how to manage a family budget, read the article (opens in a new window).
The concepts of Assets and Liabilities are only a small part of financial terms. Let's look at a few more financial concepts.
Income
Income is the money that we, as well as members of our family, if any, receive for our work and knowledge. In this article we will be referring specifically to money, since income can be either in the form of any items or intangible. For example, we did someone a favor, and for this they gave us a mobile phone. We can now sell it and get money.
Thus, income is all the money that comes to us from our activities and assets.
Income can be good and bad. This division is not related to their size
