Assets, Liabilities, Equity?

Question

I am writing a business plan based on some old notes from a master in economics. However I am I bit confused. Can you please confirm the following is right? (above all what's **marked in bold**) - Assets: anything I can sell and make money from (patents, real estates, the product I sell, etc. <-- the price **I have paid them on the first place**) - Liabilities: all my costs (salaries, leasings, **equity given to investors**, ...) - Equity: what I own (possibly **not already paid**) = actual money I get from selling these things, **without** subtracting costs (i.e. liabilities) ==> e.g. the economic value of selling patents, real estates, my product etc. (possibly **higher** than the original assets cost)

Answer 1

I like to define the five categories of accounting by using one word descriptions. Assets: Own, Liabilities: Owe, Equity: Ownership, Expenses: Use, Revenue: Earn.

Assets have a normal debit balance and can be both physical and can be tangible and intangible. You're right that some assets are things that you can sell and make money from, but be careful not to exclude other asset accounts such as accounts receivable or prepaid expenses.

Liabilities have a normal credit balance and are future payments that are owed. Be careful not to confuse them with expenses, which salaries would fall under. Think of liabilities more in terms of debt.

Equity has a normal credit balance. You're correct to call it things that are owned. Equity deals with ownership in the form of common and preferred stock and retained earnings. Additionally, dividends come out of this account. (Dividends are debited.)

Revenue is what your company earns from conducting business and has a normal credit balance. It's the most straightforward account.

Expenses have a normal debit balance are the costs associated with earning revenue. Things like cost of goods sold, salaries, and overhead all fall into this category. To differentiate between expenses and liabilities, think of expenses as the costs tied to earning revenue.