Assets, Liabilities, and Equity

Assets, Liabilities, and Equity

For those who may prefer, this presentation covers the same principles explained in the text below:

Contents:

  1. Assets

    1. Definition

    2. Examples

  2. Liabilities

    1. Definition

    2. Examples

  3. Equity

    1. Definition

    2. Accounting equation

  4. Conclusion

    1. Personal analysis

    2. “What should I do next?”

Assets

Definition:

An asset is a resource with economic value which is also expected to provide future benefit.

Robert T. Kiyosaki: “An asset provides you with income; it puts money into your pocket.”

Examples:

  • Is your car an asset? (Is it putting money into your pocket or taking money out?)

    • Typically, your car is a liability.

  • Is your home an asset? (Is it putting money into your pocket or taking money out?)

    • Typically, your home is a liability.

  • Is a dividend-paying stock an asset? (Is it putting money into your pocket or taking money out?)

    • It is an asset!

  • Is a rental property an asset? (Is it putting money into your pocket or taking money out?)

    Assume the monthly income is greater than the monthly expenses, including the mortgage payment.

    • It is an asset!

Liabilities

Definition:

A liability is something a person or a company owes, usually money.

Robert T. Kiyosaki: “A liability consumes money over time, it takes money out of your pocket.”

Examples:

  • Is eating out a liability? (Is it putting money into your pocket or taking money out?)

    • Eating out is a liability.

  • Is your student loan a liability? (Is it putting money into your pocket or taking money out?)

    • Your student loan is a liability.

  • Are your clothes a liability? (Is it putting money into your pocket or taking money out?)

    • Your clothes are a liability.

Equity

Definition:

Equity represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated (sold, turned into cash) and all of the company’s debt was paid off.

Accounting Equation:

Equity = Total Assets – Total Liabilities

Conclusion

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“What should I do next?”

Learn to speak the language of business and investment like the legends:

Understand how to read and analyse financial statements.