Asset
Definition
A resource the business controls that is expected to produce future economic benefit. Split into current assets, convertible to cash within a year, such as cash, receivables and inventory, and non-current assets like equipment, property and intangibles. One side of the accounting equation: Assets = Liabilities + Equity.
Related Terms in Core Accounting
Liability
An obligation to pay money or deliver value to someone else as a result of a past transaction. Current liabilities fall due within a year, for example payables, accrued expenses and short-term debt; non-current liabilities, such as term loans, fall due later.
Equity
The owners residual claim on the business after every liability is settled: Equity = Assets minus Liabilities. Made up of capital contributed by owners plus accumulated retained earnings, less any drawings or distributions. Also called net worth or shareholders funds.
Retained Earnings
The cumulative profit a business has earned since inception, less every dividend or distribution paid out. It sits in equity on the balance sheet and is the link between the profit and loss statement and the balance sheet each period.
Owners Draw
Money or assets a sole proprietor or partner takes out of the business for personal use. A draw reduces equity rather than appearing as a business expense, so it never affects reported profit, and it is not payroll. Owners of corporations take salary or dividends instead.
Stop memorising terms — let HelloBooks do the work
AI-assisted bookkeeping that handles invoicing, GST, reconciliations, and reports automatically. Free to start.