What do mean by Asset ?

Hi Owlwings, You said it right i was concern about depriciation. For me assets is something which generates income for you may be short term or long. When you talk about equity is it a net worth he has as you mentioned Asset - Liabilitis = net worth , Am i correct ? Investments are purely assets as they are for liquidity as and when require. Just wanted to confirm am i correct so far ? Cheers ! Vishu

Yes, you are right, Vishu. Net worth and equity are more or less the same thing, especially where an individual is concerned. It is the total value of (long term) assets less the total of all the outside liabilities. When a person is deceased, this is usually called the 'estate' in probate law. A 'liquid asset' is cash or any type of negotiable asset that can be converted quickly and easily into cash. Sometimes liquid assets are classified as any asset that can be converted into cash within a period of twenty days, so certain investments may not qualify (particularly an investment in property, which will usually take longer than twenty days to sell). Some liquid assets - certain investment accounts, for example - may incur a penalty if they are cashed within a certain time. It would be up to the individual accountant and, particularly, the circumstances to decide whether an asset were classed as 'liquid' or not.

Whether something is considered an asset or a liability very much depends on what you are calculating for. In personal (short term) budgeting, a house which you own and live in might be considered a liability (if you weren't planning on selling it) because you spend cash on maintaining it, paying the property tax and, quite likely, on repayment of the interest on the loan you took to buy it. If you were to die, however, the current market value of the house would be taken into consideration as an asset in calculating the value of your estate (and, of course, any costs and fees associated with the sale of the house would be deducted as liabilities). A car, as I said, is usually thought of as a liability because the value of it normally depreciates quite rapidly. A five year old car is generally considered worthless and certainly most company cars are 'written off' - that is to say, not taken into account as an asset - by company accountants after that time or even sooner! Depreciation, in business accounting, is counted as a liability and most working equipment - computers, printers, office furniture, vehicles and factory machinery - is depreciated over three to five years by simply dividing the purchase cost by the appropriate amount and deducting that from last year's value. If the equipment is then sold after being 'written off', any cash accruing is added to the profit side of the profit and loss account (which is separate from the 'net worth' account). Business accounting is all about manipulation of the figures (using certain well-established and recognised rules) to present them appropriately to a particular audience. Shareholders see (and want to see) a rather different picture of the accounts from the one which a potential buyer would need to see. Personal accounting is usually much simpler (thank goodness!) but, even so, your annual, monthly or weekly budget is mainly concerned with your income and liabilities, not with your long-term assets, even though some of the income may come from investments. If you are applying for a personal loan, the bank will be more interested in your cash flow situation (whether you can afford to repay the loan over time) than in your net worth, though they will naturally need to know the approximate value of your assets, too. If you are applying for a mortgage or for a business loan as a sole trader, the bank will take a far closer look at your personal net worth (and your business plan, of course, if it's a business loan) because it is that which will very likely act as collateral for the loan if the business fails! It's always worth remembering (because many people forget) that, if you 'own' your house and have a mortgage, you can't count the whole market value of your house as an asset: the bank or the mortgage company actually own most of it and you would have to repay them if you were to sell it.

Exactly my point. You hit the bull's eye. Asset should generate you income rite SinfulRose :) Cheers !

Hi Mithc, That's true if they specify what asset they are taking about then definatley it will clear the doubt. Possession is a major part when it comes to Asset, basically owner ship is the constraint. Thanks for the information. Cheers ! Vishu