Sep 29, 2009

Asset vs Liability

What does the word asset and liability mean to you? For academician and accountant, asset are catogarized into difference type, such as fixed asset, current asset, liquid asset, financial asset and so on. For those who study accounting and finance you know how tough it is when come to reconciliation of financial statement. But in real world, just make it simple and this is my opinion. Anything that puts money into your poket, it's an asset. Anything that drains out money out of your pocket, it's a liability.

If you purchase a vehicle, would you consider it as an asset? How about purchasing a house? To me, as lot as it draining out the money from our pocket it never been an asset. So if we keep on paying monthly instalment for the vehicle we purchase then it is a liability. Unless that vehicle generate positive income especially to business owner then it is an asset.

Some people bought second or even third house as an investment. This property infact is not an asset as long as it don't generate income to them. Not until the sell off the house and get net income or rent out the house at the higher rental fee comparing to the monthly instalment. Eitherwise they have to settle the monthly instalment and other charges and at this point it is a liability to them.

That why the rich acquire assets while the poor and middle class acquire liabilities. Therefore it is very important for us to have a clear understanding and know the difference between an asset and liability.

37 comments:

C.Alv.B said...

Hahahhaha... you simplify the asset and expenses. I'm an accountant.. I understand what you mean. I dont need to explain more.. just make it simple.. earn and spend them out, no worries..hehehehe

Jay said...

hehehe... thank for spending your precious time reading. always make life simple...and enjoy what we have.

Judy Sheldon-Walker said...

Very good points on differentiating assets from liabilities.

Coffee Girl... said...

I prefer to be wealthy, not rich. :-)

Jay said...

why not both wealthy and rich at the same time.

babYpose said...

I categorised my friends, the nice ones are my asset :) Informative, thank you.

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