Question

What is an asset? What is a liability? What is the difference between them? Can an organization operate without current liabilities? Explain your answer.

Answer 1

What is an 'Asset'

An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company's balance sheet, and they are bought or created to increase the value of a firm or benefit the firm's operations. An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it's a company's manufacturing equipment or a patent on a particular technology.

What is a liability?

A liability is an obligation and it is reported on a company's balance sheet. A common example of a liability is accounts payable. Accounts payable arise when a company purchases goods or services on credit from a supplier. When the company pays the supplier, the company's accounts payable is reduced.

The main difference between assets and liabilities is that assets provide a future economic benefit, while liabilities present a future obligation. ... One must also examine the ability of a business to convert an assetinto cash within a short period of time.

Current liabilities,such as accounts payable,wages payable,and taxes payable, are examples of liabilities due within a year,” With this statement alone, I do not believe a company can operate without any current liabilities. Taxes and wages can be difficult to operate without. One instance that business may be able to operate without liabilities could be a small business with few employees or just one and have a substantial amount of cash that cover expenses. I do not believe it is effective to try and operate without current liabilities especially for a significant amount of time.

Thanks