Day 2 Finance: What is Asset and Liability?

in blog •  5 months ago 

What are Assets and What are Liabilities?

Let's think about assets and liabilities like things you own and things you owe.

Assets

Assets are things that you own that have value. They are like your treasures. Here are some examples:

Money in your piggy bank: This is something you own and can use to buy things.

A bicycle: You can ride it, and it has value if you want to sell it.

Toys and games: These are fun and have value because you can play with them or trade them with friends.

Liabilities

Liabilities are things you owe to others. They are like promises you need to keep or debts you need to pay back. Here are some examples:

Borrowing a book from the library: You have to return it, so it's a promise you need to keep.
Owing your friend money: If you borrowed money to buy a snack, you need to pay your friend back.

Example to Understand

Imagine you have $10 (an asset) and you borrowed $5 from your friend (a liability).

Your asset is the $10 you have.
Your liability is the $5 you need to pay back.
To find out how much you really have, you subtract the liability from the asset:

Total amount

Assets
−
Liabilities
Total amount=Assets−Liabilities
Total amount = $10 - $5 = $5

So, you really have $5 after paying back your friend.

Why It’s Important

Knowing what your assets and liabilities are helps you understand how much you truly have. It helps you plan better, like saving up for something special or knowing how much you need to pay back if you borrowed something.

Remember, assets add to what you have, and liabilities are what you owe!

Steem to the Moon🚀!

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5 months ago by
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