Assets vs. Liabilities

Business discussions with your company accountant will almost certainly end up involving comments about either assets or liabilities, and if you're lucky both! Assets are what the company owns and liabilities are what the company owes, easy. If we count everything in the office and then add up all our unpaid bills we know all of our assets and liabilities. Unfortunately, it's not quite that straight forward, though with a little bit of guidance and a few ground rules it's pretty easy to fully understand these concepts.


There are several core criteria, all of which must be met, used to define what constitutes an asset:So in essence you need to consider control, economic benefit, and past transaction. As long as you consider those three and can reasonably argue that all criteria are met you can consider the item an asset.

These criteria can be applied to many different things that people don’t always consider when they think of the assets of a company.  Here are a few examples to get you thinking:Liabilities

Similar to assets there are several criteria that must be met in order for something to be considered a liability.Some common liabilities to consider, that often aren’t recorded by companies, include:So now when your accountant starts talking about the need to book a liability or an asset related to something this framework should help you understand a bit more clearly why.
By Jeffrey Glen

Copyrighted 2020. Content published with author's permission.

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