Definition of Asset: Assets are resources anything tangible or intangible that is capable of being owned or controlled to produce a value and it can be converted into cash.
Classification of Assets
- Fixed & Long term Assets: Those assets which are acquired by the company for the long term purpose and not to resale them. For Example: land, buildings, machinery, furniture, patents, trade marks etc.
- Current Assets: Those assets which could be converted into cash as soon as possible are called as current assets. For Example: bank balance, stock of goods, Government securities etc.
- Intangible Assets: Those assets which could not be touched, seen or felt are known as intangible assets. For example: Goodwill.
- Fictitious Assets: Those assets which are valueless but treated as assets in the balance sheets are known as Fictitious Assets. For example: expenses incurred to establish a Business (treated as preliminary expenses).
Definition of Liabilities: Liabilities are defined as debts or obligations that arising from the past transaction during the course of business operations and the company must require to pay it.
Classification of Liabilities
- Fixed Liabilities: Those liabilities which are payable after the termination of the business such as proprietor’s capital are called as Fixed Liabilities.
- Long Term Liabilities: Liabilities which are redeemed after a long period of time is called as long term liabilities. For example: long term loans.
- Current Liabilities: Liabilities which have to be redeemed in near future i.e. within a year is called as current liabilities. For example: bank loans, bills payable, trade creditors etc.
- Contingent Liabilities: Contingent liabilities are not actual liabilities but they become actual liabilities after happening of a particular incident. For example: Bills discounted with the bank is an example of Contingent liabilities because if the acceptor fails to meet the bill on due date after that firm becomes liable to the bank.