Difference Between Assets and Liabilities

By: | Updated: Apr-20, 2022
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Before going further, let us first understand the difference between assets and liabilities. A liability is a debt that you owe to someone else. In case of a liability, you have to pay back the money you owe, whereas an asset is something that has value.

Let us take an example of a person who has got a credit card in his name. He may buy something from the store and after purchasing it, he will get charged for it by the credit card company. This will be a liability of the person and he will have to pay back the money he owes.

Assets Liabilities
All those financial resources that have value and cannot be taken away from you. All those financial obligations that you have which are not backed by any assets or worthlessness as on account of which they are not valued in cash
Give you money. Take your money.

Difference Between Assets and Liabilities

In contrast, he can use his credit card to buy something from the store as well. It will be an asset for him because it will increase his wealth and give him more spending power. So there is a difference between liabilities and assets in our daily life. But what is their difference in terms of accounting?

Liabilities are all those financial obligations that you have which are not backed by any assets or worthlessness as on account of which they are not valued in cash. Liabilities are represented by credit items in your books of accounts while assets are represented by debit items in your books of accounts.

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The difference between assets and liabilities becomes clear only when you know the balance sheet. Liabilities can be used to make payments to creditors, whereas assets are the source of payments. Liabilities are also called current liabilities and assets are called non-current liabilities.

Assets are all those financial resources that have value and cannot be taken away from you. They have cash value or economic value in them. It includes everything from money in your bank account to your house, car, jewelry, precious stones etc. They can be tangible or intangible.

Let us take an example of a person who has a bank account in his name which has money in it which he can withdraw whenever he wants to. This is an asset for him because he can withdraw the money whenever he wants and it will not be taken away from him like other assets which cannot be withdrawn even if they have cash value like a house etc.

Assets also include non-cash assets like equity shares in companies, properties etc. Assets are represented by credit items in your books of accounts while liabilities are represented by debit items in your books of accounts. The difference between assets and liabilities becomes clear only when you know the balance sheet or profit and loss statement.

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