Explainry Tutorials to Expert in IT

Assets and Liabilities

In financial accounting, all business transactions are recorded in the five types of accounts: expenses, revenue, equity, assets and liabilities.  In profit and loss account, expenses are excluded from revenue to get profit figure, which then transferred to equity portion in the balance sheet where the sum of equity and liabilities’ portion should be equal to the sum of all current and non-current assets.

What are assets?

Assets are economic resources owned or control by a company with the expectation that they will provide benefits in the future. For example, land, building, machinery, inventory and receivables etc.

What are liabilities?

Liabilities are obligations to settle or pay in future through the transfer of economic benefits, arise during the course of business operations. For example payables and mortgages etc.

Difference Between Assets and Liabilities


Assets and liabilities both are categorized into current and non-current types. Current assets are economic resources which will provide benefit in short-term usually less than a year like inventory and cash etc. and current liabilities are the obligation which also settled in short-term like creditors and short-term financing etc.

Non-current assets or liabilities are long-term nature of accounts which settle or provide benefits for more than one year. For example, land is a non-current asset whereas long-term loan is a non-current/ long-term liability.

Accounting Treatment

While doing an accounting entry, we credit when liabilities increase and debit when assets increase. For example, for a purchase of an asset on credit, the entry will be:

Dr Asset

Cr Payable


The main difference between assets and liabilities is that assets are economic resources intended to provide future benefits whereas liabilities are obligations, which are settled through the transfer of economic benefits.

Copyright © 2016 - 2020 Explainry.com | All Rights Reserved