What are assets and liabilities?

What are assets?

Assets are the assets, rights and other economic resources owned by companies that can be converted into profits or bring economic returns to the company.

These assets are controlled by the company as a result of past actions.

In accounting, a company's assets are considered to be equal to the sum of its liabilities plus capital.

The asset is divided into two parts:

Non-current or fixed assets: this group includes those assets and rights that will be held in the company for more than one year.

They are not purchased for sale or marketing. Examples of non-current assets are machinery or real estate.

Current or current assets: this includes goods and rights that will remain in the company for less than one year, i.e. are acquired for the purpose of selling or consuming them in the short term. An example would be stocks.

Valuation of assets

The valuation of assets is the process by which a monetary value is assigned to each of the elements that make up the company.

These assets may be valued on different criteria depending on the different situations in which they may be found, either by their form of acquisition, their value at the time of sale or their production.

Here we list the different assessment criteria. Enter our definition of asset valuation if you want to know more about each of them.

1. Historical cost or cost
2. Fair value
3. Net realisable value
4. Current value
5. Value in use
6. Cost of sales
7. Amortized cost
8. Transaction costs attributable to a financial asset or financial liability
9. Book or book value
10. Residual value

Definition of Liquid Assets

Generally, liquid assets are defined as those that can be converted into cash in the short term without losing value and that can be converted into cash as assets without being deferred.

Economically, the liquid asset is the one that can be converted or exchanged for money quickly or not lose value when performing the conversion.

It is also defined as an asset as more or less liquid or as having a greater degree of liquidity the faster it can be converted into cash.

Examples of Assets

Assets are all assets, investments, and rights that the company has and are classified under:

Current assets: are all assets and investments of a temporary nature or convertible into cash within twelve months. Current assets are classified in order of availability and consist of:

1. Cash: is the cash
2. Banks: is money in bank accounts.
3. Investments in Securities: are the short-term cash surpluses invested.
4. Goods or inventories.
5. Accounts receivable.
6. Clients: all accounts receivable for merchandise are considered.
7. Sundry accounts receivable: are accounts receivable with a different concept of merchandise.
8. Documents receivable: regardless of the origin of the debt, there are promissory notes signed by the debtor.

Fixed assets

These are the permanent assets that the company acquires to be used by it or its customers. The asset consists mainly of:

1. Land
2. Building
3. Machinery
4. Furniture and Equipment
5. Delivery and transport equipment
6. Computer equipment
7. Depreciation: This represents the decline in value of the assets as a result of use or the passage of time and is recorded as a complementary (negative) asset account, reducing the asset giving rise to it.

Deferred assets

The balance of the deferred asset accounts is made up of prepaid expenses on which the Company has the right to receive a usable service, both in the same period and in subsequent periods.

Deferred assets consist of:

Advance payments
Consumer goods
Amortizable investments (Organizational and installation expenses)
Amortization: Represents the gradual extension of amortizable investments (organizational and installation expenses).

Definition of Financial Assets

Financial assets are financial products, in which the buyer acquires a right to collect an amount of money from an issuer that sells that product.

These assets can be issued by any economic unit, such as companies, banks or governments.

We can find fixed income financial assets or equity financial assets.

In accounting terms, the buyer of a financial asset has a right (asset) to collect, and the seller has an obligation (liability). On the one hand, the buyer has the right to collect the future revenue that will be generated, and the seller has the obligation to pay it.

Thanks to financial assets, the corporations that issue it can finance themselves through debt generation.

In addition, investors seek a return on their investment in such debt. Examples of financial assets include commercial paper, government bonds or bank deposits.

What are liabilities?

A company's liabilities are the opposite of assets. These are the obligations that the organization has with other companies, with people, with the state, etc.

All commercial debts, payment obligations, credits are taken, taxes payable, etc., are part of the liability and are therefore reflected in the company's balance sheet.

Liabilities can also be classified into current and non-current.

Classification of liabilities

1. Non-callable liability: this is the liability made up of the company's own funds, such as its share capital and reserves.
2. Liabilities payable: this is the liability that includes all of the company's debts to third parties. They are further subdivided into long-term liabilities due in more than one year from the balance sheet date and short-term liabilities due in less than one year from the balance sheet date.

Summary of liabilities

In accounting, a liability is a debt or commitment that a company, institution or individual has acquired. By extension, a liability is also referred to as the total liabilities of a company.

Equity or stockholders' equity

Stockholders' equity is the shareholders' equity, i.e. the residual part of the assets after deducting all liabilities, including contributions made, either at the time of incorporation or at a later date, as well as the accumulated results and consists of the following accounts:

• Share capital (contributions).
• Legal reserve.
• Retained or accumulated earnings.
• Profit (loss of profit)

What is an Asset and a Liability in Brief

An asset is something that puts money in your pocket and a liability is something that takes money out of your pocket. Or, put another way, if for some reason you stop working, an asset is something that generates income that feeds you, while a liability is something that eats your money and leads to bankruptcy.

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