What's an Asset?
An asset is something valuable that a company owns or controls. Think of it as a valuable resource that
can bring in money or benefits for the company.
To be an asset, it needs two things:
1. Future Benefits: The company must be fairly certain that it will get some benefit from it in the
future.
2. Measurable Value: The value of the asset must be clear and easy to calculate.
Control, Not Ownership
It's not just about owning something. What matters is if the company can use it and get benefits from it.
For example, if a company leases a building, it can use the building, even though it doesn't own it. This
right to use the building is valuable, so it's considered an asset.
Right-of-Use Assets
This is a new idea in accounting introduced by PFRS 16. When a company leases something, it can now
record the right to use that thing as an asset on its balance sheet. This is because the company has the
right to use it and get benefits from it, even if it doesn't own it.
A liability is like a debt or something you owe. When you borrow money from a friend, you owe them
that money back. That's a simple example of a liability.
For a company, liabilities can be:
Money owed to suppliers: If a company buys supplies but hasn't paid for them yet, it owes money to the
supplier.
Loans: If a company borrows money from a bank, it owes the bank money. Taxes: Companies owe taxes
to the government.
Employee wages: Companies owe wages to their employees.
Basically, a liability is anything a company owes to someone else. It's important for companies to manage
their liabilities well to avoid financial problems.
A liability is recognized when a company knows it owes something and can figure out exactly how much
it owns.
