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    Monday
    Apr202015

    What is the difference between assets and liabilities?

    The main difference between assets and liabilities is that assets provide a future economic benefit, while liabilities present a future obligation. An indicator of a successful business is one that has a high proportion of assets to liabilities.

    There are several other issues relating to the difference between assets and liabilities, which are:

    • One must also examine the ability of a business to convert an asset into cash within a short period of time. Even if there are far more assets than liabilities, a business cannot pay its liabilities in a timely manner if the assets cannot be converted into cash.
    • The aggregate difference between assets and liabilities is equity, which is the net residual ownership of owners in a business.

    For an individual, the primary asset may be his or her house. Offsetting this is a mortgage, which is a liability. The difference between the house asset and the mortgage is the equity of the owner in the house.

    Related Topics

    Examples of assets 
    Examples of liabilities 
    What are liabilities? 
    What does "asset" mean?