ASSET AND LIABILITY BASICS

ASSET AND LIABILITY BASICS
BY: MANSI GUPTA
knowledge of accounts can make life much easy.
if you are to invest in a new business or
JOINING YOUR FOREFATHER'S BUSINESS, PLANNING TO
take some loan, looking for job in any marketing
company, desire to be the manager of a
MULTINATIONAL COMPANY OR HAVE THE ONUS TO MANAGE
your own assets and liabilities, knowing some
basics of accounts becomes mandatory.

broadly, accounting is bifurcated into two
CATEGORIES-

cash bases accounting

accrual accounting

the cash based accounting pertains to the
management of an individual's personal monetary
TRANSACTIONS. IN THIS CASE, HE KEEPS A TRACK OF
the money he withdrew, deposited, gave or
received from someone etc. this accounting comes
TO LIFE WHEN ACTUAL CASH TRANSACTIONS TAKE
place.

THE ACCRUAL ACCOUNTING REQUIRES AN ACCOUNTANT
who notes the transactions even if no money has
been actually exchanged. this method works on
THE PRINCIPLE OF COMPARING OR SEEING THE RATIO
of the expenses to expenditure. if the
expenditure is more, you need to cut down your
LUXURIES, IF NOT THEN IT'S ALWAYS GOOD TO HAVE
some savings for future. this type of accounting
tells you the amount that you owed; this might
NOT MATCH WITH THE FIGURE OF YOUR BANK BALANCE.

IN THE LANGUAGE OF ACCOUNTING THERE ARE SEVERAL
key terms that one needs to be familiar with.
some of the crucial ones are discussed below-

the assets- the assets are generally those
possessions of an individual that have a good
MARKET VALUE OR ARE QUITE VALUABLE. ASSETS ARE
mainly classified into three types-
current asset- the cash is the most basic asset
OF ANY INDIVIDUAL. THE MONEY THAT IS BEING HELD
in accounts like the checking and savings
accounts is also included in the cash. also
INCLUSIVE ARE THE MARKETABLE SECURITIES IN THE
form of bonds, stocks, shares etc. the money
lent or payments due from clients, even form a
PART OF IT.

fixed asset- comprises of all the tangible
VALUABLE THINGS LIKE PROPERTY, MACHINES,
equipments, land and the like that are not meant
to be sold.

intangible asset- incorporates all the
UNTOUCHABLE THINGS LIKE COPYRIGHTS, PATENTS,
trademarks etc. that have tremendous monetary
significance.

the law of opposites governs the nature; where
THERE ARE ASSETS, THERE WILL BE LIABILITIES.
these are the debts that you have to pay back to
your creditors. this can be done through giving
CASH OR ANY OTHER ASSET LIKE JEWELRY, SOME OTHER
goods etc. liabilities again are of two kinds-

1. THE CURRENT LIABILITIES- THE LIABILITIES THAT
are to be paid back within a certain time limit
and most often through your current assets.
THESE INCLUDE THE ACCOUNTS PAYABLE I.E. TYPE OF
bill that you have to monthly, the notes
payable-loans taken from banks meant to be
REPAID WITHIN 30 DAYS AND THE ACCRUED EXPENSES-
the compulsory expenses like taxes, wages,
interests etc. where the bills are not received
BUT THE BALANCES OF EACH MUST BE REPAID.

2. long term liabilities- those debts that can
BE REPAID AT EASE FOR THE TENURE IS MORE THEN A
month.

the financial capital- is the economic capital.
IT IS ANY LIQUID MEDIUM OR MERCHANDISE THAT
stands for wealth or other styles or capital.
there are four ways to manage and display the
FINANCIAL CAPITAL. FIRST, THIS CAPITAL IS NEEDED
when a contract is made with any sort of capital
asset. the financial instruments work in the
FORM OF CURRENCY IN CASE OF SALE, PURCHASE OR
trade of goods i.e. the medium exchanges.
second, it works as a settled medium or mode
LIKE GOLD FOR THE
standard of deferred payment. third, the unit of
account has a market value attached to it which
IN TURN VARIES WITH THE ECONOMY OF THE COUNTRY.
fourth, the source of value is concerned with
financial capital that needs to be saved and
RECOVERED. IT IS A COLLECTION OF THINGS LIKE
gold, real estate, collectibles etc.

petty cash is an important factor in business.
it is the smallest account within a business
SETTING OR THE CASH IN BILLS AND COINAGE
required to pay little expenses.

TYPES OF BUSINESS- THERE ARE SEVERAL KINDS OF
business one should be aware of like

sole proprietorship- where a single individual
who starts the business owns it too.

partnerships- the companies or businesses
started by two or more persons where they
CONJOINTLY OWN IT.

CORPORATIONS- INVOLVE LOT MANY SHAREHOLDERS OR
investors who are responsible in taking
decisions for the company.

limited liability companies- can be said to be
sisters of corporations. here the business
MEMBERS ARE NOT UNDER A LEGAL OBLIGATION TO PAY
the debts if the business fails.

payrolls- the term payroll designates the manner
IN WHICH YOU WILL BE PAYING THE EMPLOYEES OF
your company and even yourself. many
multinational companies cater to payroll service
PROVIDER COMPANIES THAT DO THE WORK QUITE
efficiently.

these are some of the broad guidelines that will
help you grasp the basics of accounting. it is
ESSENTIAL TO HAVE SOME SUCH WISDOM FOR ACCOUNTS
as it is fruitful in all walks of life.

about the author:
mansi gupta writes about asset and liability
LEARN MORE AT
http://www.assetsandliabilitiesbook.com [2]

circulated by article emporium [3]
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