5. Liabilities:
The word 'liability' is derived from the French word 'lier', which means to bind. So, liability means claims of others against a business which bind the business (i.e., makes the business indebted) to others. In other words, liabilities mean debts or amounts due from a business to others either for money borrowed or for goods or assets purchased on credit or for services received on credit (i.e., services received without making immediate payment for the same). Loans borrowed, bank overdraft, creditors, bills payable, outstanding expenses, etc., are examples of liabilities.
Differences between Assets and Liabilities:
The main differences between assets and liabilities are:
1. Assets refer to properties or things owned by a business and amounts due to a business from others. On the other hand, liabilities refer to amounts due from a business to others.
2. Assets are useful to a business, whereas liabilities are a burden to a business.
3. Assets, such as debtors, bills receivable, outstanding incomes, prepaid expenses, loans given to others, etc., make others indebted to a business. But all liabilities make a business indebted to others.
4. A concern must necessarily have some assets. But a concern may or may not have liabilities.
5. If the amount of assets of a business is more than the amount of its liabilities, the financial position or strength of the business will be stronger. On the other hand, if the amount of liabilities of a business is greater than the amount of assets, the financial position of the business will be weaker.
6. Accounts of assets show debit balances. But accounts of liabilities show credit balances.
The word 'liability' is derived from the French word 'lier', which means to bind. So, liability means claims of others against a business which bind the business (i.e., makes the business indebted) to others. In other words, liabilities mean debts or amounts due from a business to others either for money borrowed or for goods or assets purchased on credit or for services received on credit (i.e., services received without making immediate payment for the same). Loans borrowed, bank overdraft, creditors, bills payable, outstanding expenses, etc., are examples of liabilities.
Differences between Assets and Liabilities:
The main differences between assets and liabilities are:
1. Assets refer to properties or things owned by a business and amounts due to a business from others. On the other hand, liabilities refer to amounts due from a business to others.
2. Assets are useful to a business, whereas liabilities are a burden to a business.
3. Assets, such as debtors, bills receivable, outstanding incomes, prepaid expenses, loans given to others, etc., make others indebted to a business. But all liabilities make a business indebted to others.
4. A concern must necessarily have some assets. But a concern may or may not have liabilities.
5. If the amount of assets of a business is more than the amount of its liabilities, the financial position or strength of the business will be stronger. On the other hand, if the amount of liabilities of a business is greater than the amount of assets, the financial position of the business will be weaker.
6. Accounts of assets show debit balances. But accounts of liabilities show credit balances.
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