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What are assets and liabilities?



A key part of reading a balance sheet is knowing the difference between assts and liabilities. Gert this wrong and it could mean the end of your business.



Assets are items of value that the company owns. The major components that make up the asset side of the balance sheet include current assets, fixed assets, investments, and intangibles. Current assets include cash and cash equivalents (bank accounts, marketable securities), accounts receivables and inventory. Other assets include investments, like stocks and bonds, and fixed assets, like real estate and vehicles. Copyrights, trademarks, licenses, patents and the company’s goodwill (standing in the community) count as assets, too, and they’re called intangibles.



Liabilities are sort of like IOUs — together, they represent the total cash value of what the company owes to other entities. Liabilities aren’t necessarily a bad thing. After all, companies have to spend money to make money. They only become a problem when a company is consistently spending more than it’s earning and has no clear and viable strategy to reduce that trend. Liabilities include current liabilities, like accounts payable, and long-term debt, like mortgages. Anything the company owes falls under liabilities.


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