In general terms, an asset is anything that can be utilized to make more money. Cash, inventory, accounts receivable, land, buildings, equipment, etc. are all things that count as assets. A liability, on the other hand, is an obligation. These are the things on which money has to be paid, either immediately or in the long run. Hence, cash payable, services owed, etc. are all part of liabilities. As assets define the money coming in, while liabilities define the money going out, it is better to have more assets than liabilities. Any business, bank or otherwise that has more liabilities than assets is probably not doing well financially.
In terms of banking, an asset is anything on which one earns an interest, whereas a liability is anything on which one has to pay interest. For banks themselves, assets are loans, securities portfolios, on which they earn interest. On the other hand, liabilities are things such as deposits on which the bank has to pay interest.
Following the original rule, money coming in equals assets, whereas money going out equals to liabilities. Keeping that in mind, for a banking customer, the roles of assets and liabilities are reversed. Here, the assets would be bank deposits and investments on which the person would earn money. Liabilities would be loans, or fees which the person would have to pay the bank.
Comparison between Assets and Liabilities in Banking:
Assets | Liabilities | |
Definition (Oxford Dictionaries) | An item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies. | A thing for which someone is responsible, especially an amount of money owed. |
Description | Anything that earns money | Anything that takes money out of the pocket |
In banking | An asset is anything on which one earns an interest | A liability is anything on which one has to pay interest. |
For banks | Assets are loans, securities portfolios, etc. | Liabilities are deposits, etc. |
For bank customers | Assets are deposits and other investments. | Liabilities are loans, mortgage, securities portfolios, etc. |
Reference: Oxford Dictionaries (Assets and Liabilities), Investopedia, Chron Image Courtesy: sponsorshipcollective.com, marketvarta.com
ncG1vJloZrCvp2OxqrLFnqmeppOar6bA1p6cp2aZo7Owe8OinZ%2Bdopq7pLGMm5ytr5Wau26t0qycratdlrulecuimJuhnJ7BqrHSZqCnZZKWu6y1zaA%3D