Assets and liabilities are opposite in nature but serve the same purpose – The purpose of growth, so it is better to understand them whether it is an individual, a company or large businesses.
It can be anything which will provide financial benefit in the future. It is something which is owned, for example, investment in stocks or properties.
Assets can be categorized on many criteria’s for instance:-
On the basis of liquidity – It is divided into two parts:-
- Current assets – These assets are highly liquid and can be easily converted into cash. For example, cash and cash equivalents, stocks, etc.
- Noncurrent assets – These assets have low liquidity and cannot be easily converted into cash. They are also known as fixed assets. For example, land or property is a type of noncurrent asset.
On the basis of physical entity – It is divided into two parts:-
- Tangible assets – These assets have a physical entity. For example land, cash, machinery, etc are all tangible assets.
- Intangible assets – These assets don’t have any physical entity, for example, brand acknowledgement, copyrights, etc.
On the basis of operational purpose in business – It is divided into two parts:-
- Operating assets – These assets are used for ongoing operations in a business, for example, cash, stocks, machinery, etc.
- Non operating assets – These assets are not used for ongoing operations in a business. For example, land owned for future development doesn’t contribute to ongoing operations in a business.
It is something which gives a future obligation to an individual, company or business. It can also be defined as a debt, a debtor owes to the creditor. The obligation needs to be paid off in the future.
It is further divided into two types:-
- Current liabilities – These are short term liabilities which need to be paid off within a year, for example, income tax, bills payable.
- Noncurrent liabilities – These are long term liabilities which need to be paid off after a year or more, for example, long term bank loans.