What is the difference between assets and liabilities? Provide examples.

• A. Assets are resources owned (cash, debtors); Liabilities are obligations owed to others (creditors, loans).
• B. Assets are debts; Liabilities are assets.
• C. Assets are wages; Liabilities are profits.
• D. Assets are revenue; Liabilities are expenses.

Answer: (A)

Assets are resources the business owns that are expected to bring future economic benefits. Examples include cash and debtors (amounts customers still owe), as well as inventory, equipment, buildings, and vehicles. Liabilities are present obligations to transfer resources to others, arising from past events, that the business must settle in the future. Examples include loans from banks and amounts owed to suppliers (creditors). These reflect what the business owes, not what it owns. On the balance sheet, assets show what the business owns, while liabilities show what it owes; the difference between the two is the owners’ equity. Wages, profits, revenue, and expenses are not assets or liabilities—they are income statement items that affect profit or loss.