Assets versus Liabilities
Wikipedia™, the world’s largest online encyclopedia defines an
asset as follows: ”In business and accounting, assets are everything owned by a person or company (all tangible and intangible property) that can be converted into cash. Since this includes intangible valuables such as stocks and accounts and notes receivable, whose cash value is not clear until they are sold, assets can also be defined as a probable future economic benefit obtained or controlled by a person or company as a result of a past transaction or event.”
In plain language that means that anything you are not able or allowed to sell for hard cash is not an asset. For many people, that includes their car, the furniture they bought with a store credit, their house, which has a mortgage on it and many more such things. However, the separation is not so simple because not everything can be clearly categorized. A good example would be a piece of real-estate property. While the over all object may represent an asset it may also represent a liability. Confusing? – Sure, let me explain. Generally, a
liability is something that establishes an obligation or legal condition for you to pay either as a lump sum or in installments before you actually own it. You have surely seen the phrase in some of the fine print in contracts: “All purchased items remain the property of <whoever sells the item> until the amount is paid in full.” What that means in plain English is that you do not own the goods until you have paid every last penny of the agreed to purchase amount. So until you have satisfied this condition the goods legally belong to the seller and represent
a liability to you. – Keep that in mind the next time you contemplate buying something on credit.
This phrase is actually the basis for the legality of repossession or, in the case of real estate, foreclosure.
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