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Assets and liabilities: A study in contrasts

by on August 20, 2019 in Business, Latest News, Lead Article, News you can use, Nuggets, Small Business, Startups

Assets and liabilities: A study in contrasts

Let it never be said that liabilities and assets are not the main components of any company or service out there.

People often tend to forget the key fact of the matter – that while both aspects may differ in nature, their ultimate goal is more or less the same, which is to increase the life-span of your business in totality.

With that main fact out of the way, let’s get down to the meat of the situation –

What are assets and liabilities?

Whether it is concerning certain services providing health and safety training courses or any kind of courses, this question needs to be answered thoroughly.

Things that are guaranteed to provide future benefits to the business at large are known as assets. This is precisely why any professional business consultant will always stress on the encouragement of building assets and reducing expenses.

In the case of liabilities, it is quite obvious that things are really not as straightforward. Since liabilities are formed when one receives a product/service that has to be paid off at a later stage. Because of this, it automatically becomes an obligation for the most part.

The various types of assets

It is important to note that certain assets provide you with direct cash inflow while others provide you in kind. There are 5 types of assets.

Let us take a look into them:-

  • Current assets: These are the kind of assets that can be converted into liquidity with a year. In this regard, the best examples of current assets are short-term investments, inventories, derivative assets and foreign currency, to name a few.

  • Non-current assets: These are also called fixed assets. While they can’t be converted into cash immediately, the benefits that they provide come into effect after a considerable amount of time. Some of the items under this umbrella are intangible assets, financial assets, deferred tax assets, as well as joint ventures.

  • Tangible assets: Now these assets have the advantage of physical existence, such as buildings, land, equipment and other inventories.

  • Intangible assets: These assets are those that have value, but do not exist physically. The aspect of goodwill, patents, and copyright are a good example of such assets.

  • Fictitious assets: Since the meaning of “fictitious” is “not real”, these assets are fake assets that actually denote expenses or losses. The reason why they are called fake is because for some unavoidable reason, none of these losses could be written off during the year. Preliminary and promotional expenses are good examples of this.

How the different kinds of liabilities work

Liabilities occur mainly when organisations run out of money and they need a certain kind of external assistance to keep moving forward in every sense of the word. Here are the two main types of liabilities:-

  • Current Liabilities: Being short-term liabilities, they are usually paid off within a year. Some of the items that can be included under this term are financial debt, derivative liabilities, advance customer deposits and short-term loans.

  • Long-term liabilities: Since these particular liabilities can be paid off in the long-term, some examples include long-term financial debt, deferred tax liabilities and long-term financial debt.

The final word

Whether you consider assets or liabilities to be more important, the fact that both aspects are an integral part of any business out there, is for sure.

Basically, the business cannot perpetuate without the creation of assets and if there is no liability, the business will not have the capacity to create any kind of leverage for itself. However, here, it is also imperative to realise the importance of cash flow and how the uncontrollable factors that businesses face, do tend to delay the rise of a business.

Whether it is health and safety consultants or anything else, generating cash flow from the main business is one thing, but the most urgent thing to consider is the investment of assets that enhance the generation of cash flow.

With multiple stream of income, one will be substantially shielded from the unprecedented events in the future.

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