Assets are things you have that you have paid money for. Liabilities are things you owe money to. Assets and liabilities are like the same coin, it is just that assets are intangible and liabilities are tangible.
The thing about assets and liabilities is that there is no way to prove which is which. When you buy a car, you don’t just put down a deposit on a car because you are convinced you have the right to drive it. You have to prove that you own it. Similarly, if you buy a house or a car you have to prove you own them.
Liabilities are all the non-performing assets like the house or the car that you own that you don’t own anymore. Assets are things you either own or owe money to. Liabilities are things you owe money to. As an example, if you own a company, your liabilities include whatever stock your shares of that company are worth, but your assets include its actual dollars.
Assets can be used for many things, like a place to live, a car, a house, or even your computer. Liabilities are limited to the things you own or owe money to. If you own a corporation you have to prove that you own the company’s assets. If you owe money to a company, you have to prove that you owe money to it. In a corporate buyout you must prove that you own the assets and liabilities.
This is a little different, but the difference between assets and liabilities is the same as the difference between cash and debt. Assets have to be earned (earned for the company), and you can’t spend them. Liabilities are things that you owe money to and that you can’t earn money from. If you’re buying a stock, you have to prove that you own the shares of the company.
The other thing that a company has to prove is its net assets. This is a very important thing. A company that does not show its net assets to the courts can face fines, penalties, and seizure of its assets. But a company with its assets and liabilities, the difference between assets and liabilities, can use its assets to pay off debts, thereby reducing its liabilities. It also has to show that it is going to be able to pay those debts in the future.
I think it’s important to understand that assets are the things that are on your balance sheet, and liabilities are the things that you’re paying off over time. You don’t have to be 100% sure that you own those shares. You can have a 100% surety that you have a full-sized fridge in your house, or that your car insurance policy covers it. But there is a difference between those two concepts, and we will discuss that distinction in a moment.
Basically assets and liabilities are just like stocks and bonds. You can have assets and liabilities on your balance sheet and have an asset and a liability on your balance sheet, or vice versa. The asset is the thing that you have in the first place, and the liability is the thing that you pay off in the future. In a sense assets and liabilities are the same, but there is a difference between them, and it is the difference between the two that we will discuss next.
Assets and Liabilities are a two way street. Assets are the things you have now. Liabilities are the things you pay off in the future. Assets have a positive balance, and liabilities require a positive balance to pay off. For example, if you have a house, a loan on the house, and a mortgage on the mortgage, you have a positive balance of cash in the bank. When you make a payment on the mortgage, the bank has to pay off that loan.
A company’s assets are what you have now. Assets change over time. Assets last until paid off, and they cost money to maintain. Assets include patents and trademarks, equipment, computers, and buildings. Assets can be owned by an individual or a company, but for most companies it’s usually a combination of the two.