Assets-Liabilities|Debit-Credit
Concept Explained

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.

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

• 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. This is a particular problem when assets are largely comprised of slow-moving inventory.

• 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.

 

Source: The difference between assets and liabilities — AccountingTools

 

What are Debit and Credit?

Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, we record numbers in two accounts, where the debit column is on the left and the credit column is on the right.

 

Debits

A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry.

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Credits

A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.

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Source: Debits and credits definition — AccountingTools