Assets, Liabilities And Money Management—Things To Know

Assets and liabilities play a huge role in helping businesses sustain themselves. They’re a part of the many exchanges investments and expenses that you take on in trying to grow and expand your endeavour. 

Many of them are long-term expenses and require management to maintain sustainable cost levels. When managing your business and finances, you need to know your liabilities and the value of your assets. 

Our CPAs in Edmonton will be at your service, but here’s what you need to know as well:
Understand What Your Assets Are
Essentially, your balance sheet is divided into assets and liabilities to arrive at a conclusive value for your company finances. They will determine the total worth of your business and help you evaluate your income.

There are various types of assets, both big and small, that help add value to your business. Some of the most common assets businesses possess are:

  • Cash
  • Investments
  • Inventory and stocks
  • Business equipment
  • Furniture
  • Property such as vehicles and real estate
  • Your assets can also exist as accounts receivables, and the money clients owe you. The goal of firms and companies is to own more assets than have liabilities to owe.

    Look At Instances Of Liabilities You Might Have

    Liabilities that businesses accrue over time also exist in various forms. Certain liabilities are short-term, which means you will be paying them off within the next year, and others long-term, which means you will not pay them off at least within the year after next.

    Among the many liabilities that businesses owe, the following are included:

  • Big and small business loans
  • Property mortgages
  • The money you owe vendors
  • Taxes of different types
  • Payroll and wages
  • Again, these liabilities can exist as regular expenses and payables—but others are harder to manage. These liabilities and expenses need to be accounted for and balanced against your income sheet.

    Person calculating and recording data.

    Liquidity Of Your Assets Varies

    Furthermore, assets also vary in terms of liquidity. The more liquid an asset is, the easier it is to convert to cash. Examples of liquid assets include your cash reserves, inventory, accounts receivables, and other current assets that you can use to pay off liabilities.

    Illiquid assets are those that are difficult to sell, such as real estate (offices, factories, etc.), large factory equipment, and machinery.

    It’s crucial to have a balance between both types of assets and possess more assets in general than liabilities.

    Management can be challenging, but it’s important that businesses keep track of both assets and liabilities to get a deeper understanding of other factors like cost reduction and cash flow planning. But you don’t need to undertake this challenge alone—get in touch with us for our business tax advisory services.