The Difference Assets, Liabilities, and Equity in Accounting?

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Assets, Liabilities, and Equity are words that we often encounter in Accounting subjects. What are assets, liabilities, and equity? This time I’ll explain The Assets, Liabilities and Equity examples.

What are Assets

The meaning of an Asset – Assets are resources controlled by the company as a result of past events and from which future economic benefits are expected to be obtained by the company. Company assets come from transactions or other events that occurred in the past. Companies usually obtain assets through expenses in the form of purchases or self-production. However, the absence of expenditure doesn’t exclude an item or service that meets the definition of an asset, for example, goods or services that have been donated to the company can be considered as assets.

Future economic benefits that are manifested in assets are the potential of these assets to contribute, directly or indirectly, in the form of cash flows and cash equivalents to the company. This potential can take the form of something productive and is part of the company’s operational activities. In addition, there are several economic benefits to assets in the future, assets could be:

  1. Used both alone and with other assets in the production of goods and services sold by companies
  2. Interchangeable with other assets
  3. Used to settle a liability
  4. Distributed to the owners of the company

Examples of Assets are:

  • Investments
  • Machinery
  • Restaurant You Owned
  • Cash
  • Real Estate
What are Liabilities

The meaning of a Liability – Liabilities are current company obligations arising from past events, the settlement of which is expected to result in an outflow of company resources that contain economic benefits.

Liabilities arising from transactions or past events. Thus, for example, the purchase of goods or the use of services incur a business debt (except if paid in advance or when the handover and receipt of a bank loan creates an obligation to repay the loan.
The settlement of current obligations, other than exemption from creditors, usually involves companies to sacrifice resources that have future benefits to meet the demands of other parties. Settlement of existing obligations can be done in various ways, for example by:
  1. Cash payment
  2. Submission of other assets
  3. Providing services
  4. Substitution of these obligations with other obligations
  5. Conversion of liabilities to equity

Examples of Liabilities are:

  • Taxes Owed
  • Bank Debt
  • Mortgage Debt
What is Equity

The Meaning of Equity – Equity is the residual right to the assets of the company after deducting all liabilities. The amount of equity displayed in the statement of the financial position depends on the measurement of assets and liabilities. Usually, only because of coincidence the amount of aggregate equity is equal to the aggregate market value of the company’s shares.

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