What’s the difference between assets, liabilities and equity?

What’s the difference between assets, liabilities and equity? assets make you money, liabilities cost you money, equity is assets minus liabilities.

Assets

Assets make you money. There are liquid assets and non-liquid assets. Some examples are cash, accounts receivable, equipment, bills, inventory, property, etc.

Liabilities

Liabilities cost you money. Is something that you owe. Some examples are accounts payable, rent, utilities, debt,

Equity

equity is assets minus liabilities. The meaning may change a little bit depending in what fields is use such as finance, investing, home ownership, accounting etc

In accounting for example if you look at the balance sheet

Equity in accounting for a company

What we own	What we owe
Assets a piece of equipment value $100,000	Liabilities -what we owe to creditors – such as a bank loan for $80,000 Equity -what we owe to shareholders -such as a certificate of ownership for $20,000

Things to know about equity in the balance sheet for accounting. When the company is profitable equity goes up, when the company is not profitable and have loss, equity goes down. equity can goes down if the company pay a dividends.

Equity in Home ownership

What we own	What we owe
Assets A house value $100,000	Liabilities -what we owe to creditors – such as a bank loan for $80,000 Equity $20,000

In home ownership, equity is assets – liabilities. $100,000-$80,000=20,000 so if you were to sold the house for $100,000, you will have to pay 80,000 to the bank.

Things to know, if the value of the house value increase by $1000 then equity increase by the same amount $1000.

If you were to pay down the loan by $5000 then equity will increase as well by $5000

The bad thing is that

If the house value decrease by $1,000 then equality will decrease as well by $1,000.

The worth thing is that

If the house value decrease by too much it may become negative and if that happens then the owner will need to speak to the bank to find a solution to bring equity back to positive. otherwise the owner can loss the house.

Example the house value decrease by -50,000, this means that equity decrease by -50,000

Investing in equity

What we own	what we owe
Assets $1,000,000	Liabilities company loan $800,000 – invest in bond market equity certificate of ownership $200,000 – invest stock market

Alright, assets make you money, liabilities cost you money, equity is assets minus liabilities.

Now, adjust and start as you go.