Financial Fredoom Tips; Discover the Difference between Assets and Liabilities

Difference between Assets and Liabilities

An asset is anything, which you own and which is valuable, whether it is tangible or intangible. Assets are said to have positive economic value. Simply put an asset is something that is worth money and which a person can exchange for money.

Examples of tangible assets, that is assets we can see and touch, are cash, goods or inventory, land, buildings and equipment. Examples of intangible assets, that is, assets which we cannot see or touch, are trademarks, copyright, patents, goodwill and stock.

A liability on the other hand is an obligation – for example money that must be paid or services that must be performed. A liability is the result of a past transaction or event. Settlement of a liability usually involves the handing over of an asset. Examples of liabilities include salaries payable, accounts payable, as well as long or short-term loans which individuals or companies take and which they, of course, have to pay back.

To put it simply, an asset is something that you OWN while a liability is something that you OWE.

A financially successful person or company has more assets than liabilities. This means that they have the means to fulfill or settle their obligations. On the other hand, a person or company whose liabilities are more than their assets is probably in trouble.

In managing your finances therefore, you must ensure that your liabilities do not exceed your assets.

This has been courtesy EcoBank as part of The Bankers Committee Financial Literacy Public Enlightenment Programme brought to you by The Bankers Committee, comprising all the commercial Banks in Nigeria and the Central Bank of Nigeria, CBN.