the relationship between assets and liabilities in the ... · bookkeeping is the relationship...

The relationship between Assets and Liabilities in The Balance Sheet

Sultan Alamoudi

Abstract:

As an abstract to the above discussion, we may summarize that the financial benefit of anything

which is possessed by the organization is known as Assets. The financial estimation of an

obligation or commitment owed by the organization to some other individual or association is

known as Liability. It is being characterized an asset as something that places cash into your

pocket. That is, resources create pay. On the other hand, liabilities take cash out of your pocket.

Costs not paid with money create liabilities. For instance, the home loan on your house is a risk;

so is the exceptional parity on your charge cards. An organization monitors the greater part of its

exchanges by recording them in records in the organization's general record. Every record in the

general record is assigned as to its sort: resource, obligation, proprietor's value, income, cost,

increase, or misfortune account.

Defining Assets

The financial benefit of anything which is

possessed by the organization is known as

Assets. In straightforward words, resources

are those questions that can be changed over

into money or produces wage for the

organization sooner rather than later. It is

useful in paying out an obligation or cost of

the substance. Bookkeeping separates

resources into two general classes which are

as per the following:

Non-Current Assets

Long term Investments

Tangible Fixed Assets

Intangible Fixed Assets

Current Assets

International Journal of Scientific & Engineering Research, Volume 7, Issue 4, April-2016 ISSN 2229-5518

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Cash

Account Receivable

Investments

Inventory

Prepaid Expenses

Defining Liabilities

The financial estimation of an obligation or

commitment owed by the organization to

some other individual or association is

known as risk. In basic words, the liabilities

are the obligations emerging out of past

exchanges, which must be paid by the

organization sooner rather than later,

through the advantages claimed by the

element. Bookkeeping separates liabilities

into two general classes which are as per the

following:

Non-Current Liability

Long Term Loans

Debentures

Current Liabilities

Account Payable

Short term Loan

Outstanding expenses

Bank Overdraft

The bookkeeping recipe is the way twofold

double entry accounting is built up. The

bookkeeping recipe, likewise called the

monetary record mathematical statement,

speaks to the relationship between the

benefits, liabilities, and proprietor's value of

a little business. It is important to

comprehend the bookkeeping equation to

figure out how to peruse an asset report. It is

likewise important to comprehend the

bookkeeping recipe to comprehend the

relationship between the organization's

money related proclamations.

Relationship between Assets and

Liabilities:

The bookkeeping recipe basically

demonstrates what the firm claims (its

advantages) are bought by either what it

owes (its liabilities) or by what its

proprietors contribute (its shareholders value

or capital). This relationship is

communicated as a mathematical statement:

Assets = Liabilities + Owner's Capital


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This mathematical statement needs to adjust

on the grounds that everything the firm

possesses (resources) must be acquired with

something, either a risk or proprietor's

capital. Resources allude to things like stock

or records receivable.

Maybe a standout amongst the most

troublesome ideas to comprehend in starting

bookkeeping is the relationship between

resources, liabilities, salary and costs. It was

found the clearest clarification of this

relationship in Robert T. Kiyosaki's book

Cash Flow Quadrant. We should

characterize these terms in a way that is less

demanding to get a handle on.

In the twofold section bookkeeping

framework generally utilized by business

and taught as a part of bookkeeping classes,

the advantages and pay should offset each

other. In a dissolvable business, resources

gained are recorded as a charge sum; salary

is entered as a credit sum. To balance the

advantage and obligation passages, we enter

pay as an acknowledge sum and costs as

charge sums. The meanings of debit and

credit have been established. The terms

retreat to the old manual bookkeeping

shapes utilized by business as a part of the

prior days PCs. Your own checkbook

register is a case of such a structure. Charges

are constantly recorded in the left segment;

credits are recorded in the right segment. A

few structures, for example, the checkbook

register have a running equalization section

to one side of the charge and credit

segments. Some bookkeeping course books

attempt to show charges and credits as

positive and negative which, as I would like

to think, causes more perplexity than

illumination for the bookkeeping

understudy.

Kiyosaki's definition additionally permits

the bookkeeping understudy to better see the

relationship's in the Basic Accounting

Equation:

Assets = Liability + Equity


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Different names you might see for value are

total assets and held profit. Resources as we

said before, have charge parities; liabilities

and value have credit parities. Subsequently,

we could revamp the above mathematical

statement as

Debits = Credits

In a twofold section bookkeeping

framework the aggregate sum of all charge

postings must be equivalent to the aggregate

sum credit postings or there is a blunder in

the books. This what we allude to as the

books being out of equalization.

To summarize our Findings:

Our Assets place cash in your pocket and are

recorded as charge sums.

The relating wage is recorded as credit

sums.

Liabilities take cash out of your pocket and

are recorded as credit sums, and

The comparing costs are recorded as charge

sums.

At last, value or total assets is recorded as a

credit sum.

In the event that an organization keeps

precise records, the bookkeeping

comparison will dependably be "in

equalization," which means the left side

ought to constantly parallel the right side.

The equalization is kept up in light of the

fact that each business exchange influences

no less than two of an organization's

records. For instance, when an organization

obtains cash from a bank, the organization's

benefits will increment and its liabilities will

increment by the same sum. At the point

when an organization buys stock for money,

one resource will increment and one

resource will diminish. Since there are two

or more records influenced by each

exchange, the bookkeeping framework is

alluded to as twofold section bookkeeping.

An organization monitors the greater part of

its exchanges by recording them in records

in the organization's general record. Every

record in the general record is assigned as to


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its sort: resource, obligation, proprietor's

value, income, cost, increase, or misfortune

account.

References

Accounting Equation. (n.d.). Retrieved from

http://bizfinance.about.com:

http://bizfinance.about.com/od/accou

ntingpractices/a/Accounting_Equatio

n.htm

Accounting equation explanation. (n.d.).

Retrieved from

www.accountingcoach.com:

http://www.accountingcoach.com/ac

counting-equation/explanation

Difference between assets and liabilities.

(n.d.). Retrieved from

http://keydifferences.com:

http://keydifferences.com/difference-

between-assets-and-liabilities.html

Understanding the relationship between

assets liabilities income and

expenses. (n.d.). Retrieved from

www.wyzant.com:

https://www.wyzant.com/resources/b

logs/10895/understanding_the_relati

onship_between_assets_liabilities_in

come_and_expenses


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