An asset is an economic resource that a company owns or controls with the expectation that it will provide future benefit to the company. Assets can be both tangible and intangible. Examples of assets include cash, accounts receivable, inventory, equipment, buildings, patents, and trademarks.

Assets vs Liabilities:

Assets are economic resources that a company owns, while liabilities are financial obligations that a company owes. The difference between the total assets and total liabilities of a company is known as its equity or net worth.

Is a loan an asset or a liability?

A loan is typically considered a liability because it represents an obligation for the company to repay the borrowed funds in the future. However, the cash received from a loan can be considered an asset since it increases the company's cash reserves. The loan itself remains a liability until it is repaid.

Software assets of a company:

Software assets refer to any software programs or applications that a company owns or uses to support its business operations. This can include operating systems, productivity software, specialized business applications, and custom-developed software. These assets are often considered intangible assets and can be an important part of a company's intellectual property.

Lets Understand with an example

Harsh is a young entrepreneur who has just started a new technology company. To get his business off the ground, he takes out a small business loan. The loan provides him with an influx of cash, which he uses to purchase computers, software, and other equipment needed to run his company.

In this scenario:

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    The loan is a liability:

    Harsh is now obligated to repay the borrowed funds over time, so the loan represents a liability for his company.

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    The cash from the loan is an asset:

    Although the loan itself is a liability, the cash Harsh receives is considered an asset. This cash can be used to purchase other assets, such as computers and software.

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    The computers and software are tangible assets:

    These items are physical assets that Harsh owns and can use to support his business operations.

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    Without external funding, businesses tend to operate more efficiently and cost-effectively, often leading to leaner operations.

  • Overall, while the loan is a liability, the cash and assets purchased with the loan are assets that can provide future benefits to Harsh's company.

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