When we talk about the basics of accounting, we often hear that accounting is all about managing your assets and liabilities. This happens because assets and liabilities are the most common terms which everybody is familiar with. But their familiarity with these terms is limited. People without the base background of accounting do not understand what assets and liabilities exactly are. So what are assets and liabilities?
An Edmonton accountant will describe assets as the materials, property, and resources which hold monetary value and belong to an entity. Assets can be tangible or intangible. Tangible assets are things which can be seen and touched such as building, home, vehicles, machinery, etc. Intangible assets are resources which are not visible or touchable such as copyrights, trademarks, patents, etc.
A liability as per Edmonton accountant is a debt or obligation that a company owes to someone, which is required to be paid up in monetary or non-monetary forms. Common examples of liabilities include accounts payable, salary and wages payable, taxes, debts, etc.
Types of Assets
1) Fixed Assets
Fixed assets refer to the assets which are owned by the business and used to generate income. The business does not plan to sell them in the short run but plans to keep them and use them for years. Common examples include office premises, commercial vehicles, machinery, etc.
2) Current Assets
Current assets are short-term assets of the business which are a part of the business for a brief period. These assets remain in the business for not more than one year or so as these assets get used up within a short period. Common examples include short-term investments, stocks, cash, and inventory, etc.
Types of Liabilities
1) Current Liabilities
Current liabilities are dues and debts that the business needs to clear within a one year. This will include your accounts payable or credit suppliers who have provided you with raw materials for the business on credit basis. It will also include the excess money if any withdrawn from the bank as an overdraft. Other examples include tax liability, interest payment, etc.
2) Long-term Liabilities
Certain debts and obligations need not be fulfilled at the earliest or within a year. These are known as long-term liabilities. Mortgages, bank loans, business- issued bonds are some common types of long-term liabilities.
To sum it up for you, assets and liabilities are what you own and what you owe respectively in your business. Having the knowledge about the same is necessary as it helps you finalize your accounts properly. If you still have doubts about assets and liabilities and find it difficult to maintain your books of accounts, then you need to hire an expert Edmonton accountant.