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, since this indicates a higher degree of liquidity.

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 Courses

Bookkeeper Education Bundle 
Bookkeeping Guidebook