In business terms, assets and liabilities often appear together. They are the two fundamental elements that shape the financial health of your business and make up your company' balance sheet.
What are assets?
Assets are resources (tangible and intangible) that your business owns, and that can provide you with future economic benefit. They add value to your business, they can help you meet your commitments and increase your equity.
What are liabilities?
Liabilities are your business' debts or obligations which you need to fulfil in the future. This is the money you need to repay, the goods you need to provide or the services you need to perform. These responsibilities arise out of past transactions and need to be settled through the company's assets.
Both assets and liabilities are reported on the company's balance sheet. While some assets are depreciable, liabilities are not - they do not diminish in value over time. See more on depreciation of assets.
Examples of assets and liabilities
Similarly to business assets, there are two broad categories of liabilities. Depending on their maturity, liabilities can be either current or non-current.
Current liabilities are those due within the present accounting year, such as:
- bank overdrafts
- accounts payable, eg payments to your suppliers
- sales taxes
- payroll taxes
- income taxes
- short term loans
- outstanding expenses
Non-current liabilities are those financial obligations that are not due for settlement within one year during the normal course of business. Also known as long-term liabilities, they include:
- bonds payable
- capital leases
- mortgage debt
- long-term borrowing
- pension liabilities
- deferred revenues and taxes
- securities, such as stock shares or bonds
- notes payable
In the balance sheet, you need to take in consideration both your assets and your liabilities to accurately reflect your business' financial position. See more on balance sheets.