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In accounting, an asset refers to anything which has economic value and can provide benefit to the business at present or in future. It helps in generating income for the business. An asset is recorded in the company’s balance sheet to know its net worth. The success of any company or business depends on how its asset is managed. An asset can be physical such as cash, land, building etc or right such as copyright, trademark, patent etc. It may be an enforceable claim against others such as account receivable or an assumption such as goodwill. Assets are basically classified according to the ease with which it can be converted into cash.
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Liability refers to the claim against the asset of a company. It is company’s obligation either to pay the money or render the services. A liability is basically an amount owned by an organization to bank, supplier or provider of goods and services. It can be listed under accounts payable and is entered in the credit side of the double -entry bookkeeping method of managing accounts. To settle a liability, business has to either return the amount taken or provide the goods or services as promised.
Where are assets and liabilities recorded in the books of accounts?
Assets are recorded on the debit side and liabilities on the credit side of the balance sheet. Debit side of the balance sheet should be equal to the credit side to know the actual worth of the company
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