Knowing the Differences between Assets and Liabilities
- Steve Cage
- Jun, 25
What do you know about assets and liabilities? Do you know which one is better for you? Some people come in expecting to become rich, but they have no idea what to look for or how much work it really takes. First look at what you currently have in the financial realm. To be able to assess appropriately on what you need, you will need to assess what you currently have. First things first, divide what you currently have and what you plan on getting into two different categories and know the meanings behind them. In this, we will be going over the differences between assets and liabilities.
Assets are the act of owning such as property. It is also resources that are expected to produce any income or capital. In any case it is anything that you can control. For example: a car with a car loan attached to it is still an asset. Why? You control the car, you drive the car, and you enjoy the car. The car is for you, and benefits you. Therefore, it is listed as an asset even if it has a loan on it.
Types of Assets
There are two commonly known types of assets that you need to be aware of. These assets better prepare you for the time accompanied with each one. This also allows you to plan accordingly to your life, and how long the income and consumables will last. There are current assets and there are non-current assets.
Current assets are assets that are expected to be consumed within a year from right now. These types of assets can include cash that you currently have. Even if you have money in the bank, that is a current asset. You can also include short-term investments on this list as well, as it is expected to be benefited from in a short amount of time. If you own a business, big or small, and you have inventory; this too is also listed under current assets. If you have expected money coming in, or payments of any kind, that you are expecting to collect, you can also place this on the list. These are assets that will benefit you now or in the very near future.
Non-current assets are assets that are expected to be consumed outside of a year or more. This means that you will gain benefits any time after a year. This can range from two years to a lifetime. Non-current assets can include land and buildings. These are things that you will benefit from later in life. If you own any business equipment, this too will be added in this list. If you have any long-term investments, such as life insurance investments, stocks, or bonds; these would be considered non-current assets.
Liabilities are responsibilities that are due to be paid out. This includes debt and any other financial obligation. Liabilities are the loss of assets (cash). This can include very small aspects such as bank overdraft fees. That is money that has to be paid back. It can also include bank loans. It liabilities can also come in the form of paying taxes. If you own a business, you are well aware of tax payables.
Current liabilities, just as current assets, are done within a year time period. However, instead of receiving you’re giving. Accounts that are due to be paid off within a year are to be placed in this list. This can include title loans, bank loans, or any other type of short term loans. This is something that you will need to pay within a year from today. If you own a business, this can mean paying suppliers. This also can include short term tax liabilities, taxes that need to be paid within the year.
Non-current liabilities are done outside of a year time span. This is money needing to be paid after a year has passed. This can include mortgages on a home that constantly needs payment on the home loan. Also larger loans that you may have to pay over a long term time frame go here as well, as they will be paid off after a year is up. Bond can also be included under this. If you own a business, you know warranties also are covered under this as some warranties are multiple year warranties. Last but not least, long term tax liability. This is taxes that have to be paid outside of the year mark.
Why Did You Need to Know This?
Companies all over the world are in it more for the money. They will make you take on a liability instead of providing you with an asset. You will also be responsible for not taking on extra liabilities that are not needed. That truly is a waste of time and resources. You cannot invest money if you are not saving it and turning it into an asset for yourself in the future. As long as you can control it and you can benefit from it, it is an asset. If you are losing money and it is not benefiting you in anyway, just putting you into or further into debt, it is a liability. There are worksheets available to figure these items out. It will help you balance your person finances and plan for your future financial basis.