The concept of assets and liabilities
Assets in accounting are the economic resources owned by the company or the individual, which are purchased to benefit from them in the current or future period to achieve profits for the company, and therefore they are anything of value owned by the company, whether it is equipment, land, buildings, or intellectual property rights, and the assets appear in a list. The balance sheet with the debit balance categorizes assets on a broad scale into short-term assets, current assets, fixed assets, financial investments, and intangible assets. Whatever type of asset generates cash flow, reduces expenses, or increases revenue is an asset that the company must own as of the date of the financial statements.
Liabilities are any debts owed by the company, whether they are bank loans, unpaid bills, debentures, or any other amount of money that the company owes to another person. the company’s balance sheet, but on the credit side, with a future benefit for the company’s profits.
Why debit assets and credit liabilities?
As we explained earlier, assets by nature appear on the debit side and liabilities by nature appear on the credit side of the statement of financial position, and this is quite logical as the accounting is based on the double-entry system, which ensures that the balance sheet list is always balanced, as every financial transaction has equal effects. And opposite in at least two different accounts, the debit entry results in either an increase in assets or a decrease in liabilities in the company’s balance sheet, and the credit entry is an accounting entry that leads to either an increase in the obligation or equity account, or a decrease in the account of assets or expenses, which appears in the equation : (Assets = Liabilities + Equity), and when the assets increase, the company’s profits and cash flow increase, so it is indebte, because there must be something owed for that increase (the price of the asset), and the obligations or liabilities are what the company must pay from loans andother sources During a specific period, and thus a deficiency for the company, it becomes a credit because it refers to an amount borrowed from others and used to purchase something (hence the corresponding deduction in the asset account)..
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Exemplifications of Assets and Liabilities Accounts
Suppose a company decides to purchase new equipment for $15000 on the account, and the equipment is a fixed asset, so the cost of the equipment will appear in debiting the amount of $15000 to the company’s fixed asset account, and the purchase of equipment also means an increase in the company’s liabilities (in the case of a purchase on the account), thus you will increase the credit account by depositing $15000 to the liabilities account, represented by the following entry:
$15,000 from h/fixed assets
To h/ commitments 15,000
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