Tuesday, 24 July 2012

Assets, Liabilities, Debtors, Creditors and Capital

I see you starting to ask yourself “What is the meaning of Assets,  Liabilities, Debtors, Creditors and  Capital, I don’t know any of these!?”

Yes these terms to the unfamiliar eye can look daunting but do not worry they are relatively simple to understand.





                     The picture above gives a good example of assets and the liabilities they accrue.








What is an Asset?



An asset is something that is controlled by an entity where the entity expects to receive resources such as financial benefits in the future. There are two types of assets fixed and current assets.

Fixed assets are  also known as non-current-assets. They cannot be easily be converted into cash. They are usually held for long term purposes of greater than 5 years. Examples of fixed assets include Machinery, Inventories, Motor Vehicles, Land or Buildings.

Current assets are held for a short period of time. They are used to pay of small debts or liabilities of the company. They can also be easily be converted into cash. Examples include cash, prepaid expenses and stock.
These examples are the main type of assets, as you continue your study of accounting you will see many more types of assets.



§  Assets can be found in the Statement of Financial Position i.e. The  Balance Sheet. Assets are something the entity has at the end of the accounting period.

§    They are not found in the Income Statement.

§ Assets are also on the debit side of the accounts.

§  Can you name other types of assets?







To learn more about assets in accounting check out this link:

Accounting Basics 3- Assets





Uploaded by on Jan 11, 2008







What is a Liability?


A liability is a debt where an entity has to pay for. These liabilities arise from past events. There are also  two types of liabilities fixed and current liabilities.

Current liabilities are debts that must be aid within a year usually. Examples of current liabilities include Bank Overdraft, unpaid phone bill and loans.

Fixed liabilities are debts that a company owns that are greater than one year. Examples of fixed liabilities include debentures, mortgages and long term loans. They are also known as long term liabilities.










§   Liabilities are something the entity has at the end of the accounting period.

§   As well as assets, liabilities can be found in The Balance Sheet and not in the Income Statement.

§  Liabilities are also on the credit side of the accounts.

§    Can you name other types of liabilities?                              


                                                                                                                             

         



To learn more about liabilities in accounting check out this link:


Accounting Basics 4- Liabilities 

 



 Uploaded by on Jan 11, 2008





What is a Debtor?

 

A debtor is an entity who owes economic resources to the firm or a person for goods or services.
So for example a Furniture company OKEA Ltd. Has sold goods of €1000 to a customer and you give them 30 days credit. This means OKEA might not get paid for 30 days. This customer will be known a debtor or trade debtor.










Check out this link to understand more about debtors and creditors:

Trade Debtors & Creditors explained! 





Uploaded by on May 23, 2011



For a further explanation of debtors check out this website:

http://www.e-conomic.com/accountingsoftware/accounting-words/debtor







What is a Creditor?


 

A creditor is where you or your company owe money for goods or services.

We can use the example furniture firm of OKEA Ltd. OKEA has electrical bills of €2000 for the month. Their electric company says they can pay the bill in a 30 days’ time. OKEA will be known a s a creditor or a trade creditor.





For a further explanation of creditiors check out this website:

http://www.e-conomic.com/accountingsoftware/accounting-words/creditor

2 comments:

  1. Really informative. You showed it in a very interesting manner. I had fun reading your post.
    llc

    ReplyDelete