Investors who want to attain financial freedom must have knowledge about assets and liabilities. Because the asset is only part of personal finance. And also those who are completely new in the account, who have just come to the account, need to know about the asset and liabilities. That is why I will try to explain to you what is Asset and Liabilities — Assets and liabilities meaning through this article so that you can know in a very easy way. So let’s explain each point very well.
What is an asset
If we talk about assets, first of all, there are all those things inside the business which make the business earn money in the future. Those are assets.
It means that assets are all those things that put money in your pocket and increase your income.
Example:- Investment, Land, cash, etc.
Type of Asset
Talking about the type of asset, broadly these are of two types 1. current asset 2. noncurrent asset
These are mainly used within accounting convinces.
Current asset: — This can be converted into cash within less than 1 year, meaning whatever can be converted into cash in less than 1 year, we call it a short-term or current asset.
So let us understand by example which asset comes from which is a current asset or short-term asset.
Cash and deposit: — The money lying in the hands of the company or the fixed deposit inside the bank, which you can convert into cash at hand, has become your current asset in less than 1 year.
Short-term investment:- This is an investment of less than 1 year from where you are getting interested within the short term. It has become the current asset.
Noncurrent assets:- Any investment which takes more than 1 year to convert into cash or get its value for a long time, are noncurrent assets or we call them long-term assets.
Let us understand with an example land and buildings, furniture and fixtures, stocks, mutual funds, etc. All these assets which take more than 1 year to get a return are all non-current assets.
There are also 2 types of noncurrent assets 1. tangible assets 2. intangible assets
Tangible assets:- Tangible means that which you can touch and feel. Meaning such assets which you can touch and see and give you by producing income.
Example:- land and buildings, vehicle, furniture, and fixtures, etc.
Intangible assets:- The opposite of tangible assets is intangible assets. Meaning which you cannot physically touch or see. But they are benefits for us.
Example:- patents, trademarks, copyrights, goodwill
What are Liabilities
Whoever has to pay the money to whomever the business and business have to pay in the future, whatever money has to be given is all liabilities. The things from which money is received are all assets and the people who have to give money in business are liabilities.
Example: — If you take a loan from the bank, then you have to pay the loan or if you have taken money from someone else, then you have to pay it, then all those liabilities are there.
Types of Liabilities
There are also 2 types of liabilities 1. current liabilities 2. noncurrent liabilities
Current Liabilities:- We will call the current liabilities short-term liabilities. Because of the loan, we have taken or there, we will have to repay it in 1 year or less than 1 year.
Accounts are payable in current liabilities, ie those suppliers or creditors from whom we have purchased there and their money is yet to be paid. And this interest is payable. That is the interest which is expensive. Because of that payment is not made.
Short-term loan:- That is, when a company takes a loan from a bank for 1 year and agrees to return it, they also come under current liabilities.
Noncurrent liabilities:- Noncurrent liabilities are known as long-term liabilities. Meaning, whatever loan or other people have to repay for 1 year or more than 1 year, the same is called non-current liabilities.
Example:-
1. Like long-term loans come, which we take for a long time and not for 1 year.
2. Debentures i.e. when the company takes money from the public to increase its capital, then it issues a certificate for that which is called debentures. that too for a long time
I hope you liked my article What is Asset and Liabilities — Assets and liabilities meaning. If you have any questions in your mind, then you must tell by commenting so that I get a chance to answer your question.
