Accounting is a kind of information system, the main task of which is to display information about the economic activities of the enterprise with a view to its further analysis and management decisions. Asset and liability are the basic concepts of accounting. In this article we will tell you what these terms mean and why they are so important.
As you know, one of the main accounting documents of the enterprise is the balance sheet, in which there are sections "asset" and "liability". The “asset” section displays all the property owned by the company - fixed assets, capital goods, low-value items, money in accounts and cash registers, receivables and more. All assets are the property of the enterprise and are recorded in the balance sheet after they go through the valuation procedure, which is different for each type of property.
Obviously, no property can be acquired free of charge, without the use of any means. That is why the “liabilities” section includes all sources of the formation of company assets. These sources can be divided into two large groups: the capital of the enterprise (the amount of money and the value of the property provided by the founders as initial deposits) and its obligations - payables, arrears in settlements with suppliers, authorities and employees.
Now let's try to figure out why the main document is called precisely “balance”? Why is the balance of assets and liabilities so important? Strange as it may seem, the physical law of conservation of matter will help to understand this, the basic essence of which can be conveyed by the phrase “nothing appears from nowhere and does not disappear into nowhere”. In relation to accounting, the acquisition of any property in an asset should entail a corresponding change in liability. Say, the receipt of money by a firm as a loan, on the one hand, will be displayed in the asset item “cash in the account”, but also in the liability item “payables”. If, later, other assets, such as shares, are acquired for this money, then there will be a transfusion between the articles “money in the account” and “financial investments”, but the asset and liability balance will still be equivalent. It is this equivalence that shows that all reporting has been compiled correctly and that there are no errors in displaying the business activities of the company.
Thus, an asset and a liability are, in fact, two sides of the same coin, only an asset shows that side that concerns only the acquisition and possession of property, and a liability - one that is related to the source, thanks to which the company receives new property. The observance of equality of assets and liabilities is an important task for any accountant, since the mismatch between the two sections of the balance sheet shows that it was drawn up with an error. Finding an error in the balance sheet is quite simple - just find the difference between the asset and liability, and divide this amount into two. The resulting figure will be the sum of the error mistakenly entered in the wrong section. True, this method is effective only if only one mistake is made - otherwise, the search for inconsistencies may stretch for a long time, and, perhaps, the preparation of the document will have to start again.
We hope that we have brought comprehensive information to readers about what an asset and a liability are. Remember, the equality of the two sections of the balance sheet is the main principle of accounting and the main sign of proper accounting in the enterprise. We wish you that the asset and liability in your balance sheets always converge penny to penny !!!