What are liabilities and assets in a balance sheet

A balance sheet records what the business owns and owes

The three (3) main components in a balance sheet are;

Assets

Assets can be categorized as current assets and non-current assets. Current assets are items owned by the business that can be made available quickly to be used to pay short-term debts or day-to-day cost of operations. They are cash in the bank, inventory of goods and accounts receivable.

Non-current assets are items owned by the business that is of high value and difficult to disposed off, such as vehicles, buildings, machines and equipments. These assets are considered as capital investment that is meant to be utilized long-term.

Liabilities

Liabilities are also categorized as current liabilities and non-current liabilities. Current liabilities consist of short-term debts that needs to be repaid from within a month to a year. These are usually owing to suppliers who provided trade credit and overdrafts.

Non-current liabilities are long-term debts like mortgages or commercial loans. These amount loaned would need more than a year to fully repay.

Capital

Capital is the value of investment invested into the business. For incorporated businesses such as Private Limited or Public Limited companies, capital is known as shareholder's funds as ownership of these type of business organizations are measured by the number of shares held by an individual or entity. As such for a sole trade or partnership,

TOTAL ASSETS = LIABILITY + OWNER'S CAPITAL

While for an incorporated business,

TOTAL ASSETS = LIABILITY + SHAREHOLDERS' FUND

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