What is the different between asset and liability?

Assets are resources owned by a company that have economic value and can be used to generate future income. Examples of assets include cash, inventory, equipment, and property.

Liabilities, on the other hand, are obligations or debts that a company owes to external parties. Liabilities represent the company's financial obligations that must be paid off in the future. Examples of liabilities include loans, accounts payable, and accrued expenses.

In summary, assets represent what a company owns, while liabilities represent what a company owes. The difference between assets and liabilities is known as equity, which represents the net worth of a company.

Assets

- Definition: Assets are economic resources owned by a business that have a future economic value.
- Characteristics:
- Control over the asset by the business
- Expected future economic benefits
- Measurable and quantifiable
- Examples:
- Cash
- Accounts receivable
- Inventory
- Property, plant, and equipment
- Goodwill

Liabilities

- Definition: Liabilities are debts or obligations owed by a business to other entities.
- Characteristics:
- Obligation to transfer economic benefits to another entity
- Present existing obligation
- Measurable and quantifiable
- Examples:
- Accounts payable
- Notes payable
- Loans
- Taxes payable
- Unearned revenue

Key Differences

- Nature: Assets represent economic resources owned by the business, while liabilities represent obligations owed to others.
- Economic Benefit: Assets have a potential future economic benefit, while liabilities have a present obligation to pay.
- Control: Businesses have control over their assets but not over their liabilities.
- Timing: Assets are recorded when they are acquired, while liabilities are recorded when the obligation is incurred.
- Impact on Financial Statements: Assets increase the total assets and equity on the balance sheet, while liabilities increase the total liabilities and equity.