Define assets, liabilities, and capital.
Answer (2)
Assets are resources owned by an entity with economic value, liabilities are debts owed to others, and capital represents the owner's equity after liabilities are deducted. Understanding these concepts is essential for assessing financial health and decision-making. Assets and liabilities help measure an individual's or business's financial position, while capital is key for understanding ownership stake.
;
Assets:
Assets are economic resources owned by a business or an individual that have monetary value and can provide future benefits. These include cash, inventory, buildings, machinery, and receivables. Assets may be tangible (physical) or intangible (non-physical, such as patents or goodwill).
Liabilities:
Liabilities are obligations or debts that a business or individual owes to others. These are settled over time through the transfer of money, goods, or services. Common examples include loans, accounts payable, and outstanding expenses.
Capital:
Capital refers to the amount invested by the owner in the business. It represents the owner’s claim on the business assets after all liabilities have been paid off. In accounting, capital is also known as owner’s equity and reflects the net worth of the business.
