What are assets and liabilities

<>

Whether or not it is related to the world of accounting or finance, the concepts "Assets" and "Liabilities" are heard many times.

They are terms or matters that entrepreneurs, freelancers or anyone who wants to start in the business or trade field should know..

They help to understand the accounting of a company or private business and to examine how projects of this type are progressing.

But even outside these fields, the use of these terms goes beyond family life and personal dynamics.

When handling financial concepts, generally specialized; Those who are not used to these will almost always have doubts about them, in case they need to understand or assimilate them in the midst of specific situations where their use may be required.

Nos referimos en este post a Activos y Pasivos.

In a very simple way we can affirm that An asset will be the good or product that will generate income for whoever owns it, with the opposite being a liability, in other words, it will be all that will cause us expenses.

An asset will produce an increase in equity from time to time or on a recurring basis, and the liability will be the opposite, it will be causing losses in our capital.

In the "balance sheet" or "statement of financial position", there will be three key items: Assets, Liabilities and Stockholders' equity, the latter also known as equity. Assets are those available resources, with which the company will carry out its operations. They will be the goods or also the rights, which are property of this.

The liabilities for their part are the debts and obligations that the institution will have.

Assets will refer to what the company has and, on the other hand, liabilities to what the company owes. Let's see more details about these concepts.

Assets

An asset could be considered an investment that will help increase purchasing power. The most valuable assets will be those that produce the most money with the least effort.

Many assets will obtain a single profit, generally in the act of sale after the appreciation, others will produce periodic profits.

Assets are the goods that will have a sale price or a recovery price. Those that can be traded and calculate the value of our assets or investments. It could be money that has been invested in bank accounts, mutual funds or stocks, valuables or artwork, cars, accounts receivable, etc.

It is not considered appropriate to pay attention to this purpose, interest on investments or real estate income, since this type of income will be part of the monthly budget that will be used for current expenses.

Taking a company as a reference, the assets will be those goods, rights and other resources, which are economically controlled by it., result of past events from which it is expected to obtain economic benefits in a future time.

In general we can say that "Assets" will be everything a company owns plus its investments.

Regarding its nature, it does not have to be physical money as such, it is enough that it can be converted into economic returns that end up being translated into sources of liquidity.

Los activos serán controlados por la compañía y no hace falta que be su propietario en el sentido legal.

What kind of assets are there?

The Asset may include or contain multiple items that will be part of the company, and will be divided into different groups. In general, they are structured in two types according to the function they will fulfill in the operating cycle, it could also be by nature

Non-current assets -long term-

The Non-Current Assets will group those assets destined to be used in the company for a period exceeding one year.

They are usually part of the longer term decisions of the company and are almost always converted to liquidity through the amortization procedure. In addition, financial investments will be included, which will expire or will be made in a period of time greater than 12 months.

Current assets -Short term-

This type of asset, Current assets, will refer to the assets that a company has the prospect of marketing, consuming or realizing in less than a year.. Cash and other possible liquid assets will be included.

Passives:

If we look at it with a business vision, the liabilities will be the current obligations that arose as a result of past events, for the extinction of which the company will deprive itself of resources that may produce future economic returns.

The Liabilities will be the set of debts that must be settled through the benefits obtained with the Assets.

At the domestic level, a loan that is requested in some sense, insurance, mortgage, etc. they would be part of our liabilities.

What type of liabilities are there?

In a similar way to Assets, there are several Liabilities and of different characteristics.

A classification form can be taken considering the due date of the debt.

Non-current liabilities - long term-

It will be made up of the debts that are with third parties, with a maturity of more than one year.

Not only will they have a long-term maturity, they will also have a financial cost for the company and are usually used to finance its Non-Current Assets.

Current liabilities-short term-

It is also known as current liabilities. Corresponds to debts at the due date less than 12 months and that will be used to finance the Company's Current Assets.

Assets and liabilities on a company's balance sheet

On a balance sheet, it will be feasible to examine how the assets of a company are on time. In this, the value of "things" or "debts" will be counted.

In this type of report, two parts can be clearly identified, the asset and the liability. In the case of assets, you will be counting what is being done with the money and in what form it is. Everything that exists in the company and has an implicit value will be reflected in the assets of the balance sheet. Everything that has value must have the quality of generating more value.

In the liabilities, the real ownership of the money available will be registered.. This can belong to the company or be a loan from the bank or others. The owners of these sums have to demand a refund in exchange for delivering the money, having a cost for the company to own it.

Assets and liabilities in family finances

At a family level, it is very convenient to analyze and understand in detail what are those goods that cause us expenses and that originate cash flow. From this dynamic we will identify what really happens in our context related to Assets and Liabilities.

Let's look at two cases, referring to the purchase of a home and the possession of a Vehicle.

Obtaining a home is interpreted as having financial stability, and if you look at it from an accounting perspective, it will be considered an asset, in other words, part of our asset because in theory we can market it, obtaining advantages from the valuation action.

For many and being realistic about personal finances, they will consider a house as a liability. If you had a mortgage, the problem would be even worse because the property would be owned by the bank and it would only be feasible to use it if you had enough money to pay the mortgage.

In other words, in such a circumstance, the household will take money out of its pocket. You will also have to pay taxes, repairs, maintenance, etc.

If this house is put up for rent, there will be profit and already in one of these cases the property would become an Asset, would be putting money in your pocket. This despite the fact that it has to be spent on maintenance, taxes, etc. because she will bear those expenses herself.

The truth is that this has been a controversial issue and discussed by many.

A few years ago before the crisis, Spanish citizens would have affirmed that housing was an asset, and that without discussing it. At this time due to the large depreciation of the value when it is sold, it could be a hindrance. In specific situations, the consideration that owning a home will tend to be worth more is questionable.

Whatever the case, some consider the acquisition of a home advantageous, valuing it as an excellent asset., as long as your purchase is made in a timely manner, not biased by fashions, booms, or other factors that could lead to poor choice

The particular circumstances, whether personal or economic, of a buyer, will turn a home acquired into a future asset or a really negative liability for its assets.

If instead of a house we speak of a vehicle, we will see that the course followed is very similar. This will be almost a liability, since money will have to be spent on taxes, insurance, repairs, etc. to be able to obtain the own benefit that supposes.

If in certain circumstances a vehicle is used in such a dynamic that it pays benefits, then it would be an asset, this if the money received were enough to also cover the expenses generated by the car.

In this context that we have put into perspective, the most relevant thing is to pay attention that Assets will lead us to balance and financial freedom, and even when logically we can be acquiring Liabilities, Ideally, these should be adjusted to our economic capacity, in order to ensure adequate family security.