Question

Define (a) assets,(b) liabilities,(c) equity,and (d) net assets.

Short answer

Assets, liabilities, equity, and net assets are part of the balance sheet and represent either the income-generating resource or a claim on those resources either by the owner or by the lender.

Step-by-step solution

a) Assets

Assets are the resources that a business owns and have the income generation capacity. These are either permanent or current but are able to be carried forward in the next accounting year.

b) Liabilities

Liabilities are the obligations on the business that must be paid within a year or more than a year. These obligations are either internal or external. All obligations are the claims on the resources or assets of the business.

c) Equity

Equity is the owner’s contribution in the business. This is the claim on the business by the owner. Equity has two parts – invested amount that is equity capital and retained amount by the business that can be claimed by the equity holders or owners.

d) Net assets

The net asset is the final result after deducting any future value loss from the assets. This future loss may be in the form of depreciation, provision for loss, or loss of any asset.