In this session, we will be learning about what does the cavity What does drawings, what does liability and types of liabilities, what is the asset and types of assets. So, let's begin capital amount invested by the owner of the firm in his business is known as capital, capital maybe in the form of cash goods are assets, since the business is considered as a separate entity, the capital invested is considered as a liability. So, see this is a business and this is an owner now owner will in the West something's in the business he may invest it in the form of Cash invested in the form of stock or invested in the form of assets. So, now all this investment by the owner in the business is known as capital. So, since the business and owner are treated as separate from the point of view of business the capital invested by the owner will be considered as a liability and it will be recorded on the liability side of the balance sheet Okay.

Now in case of company Okay, what happens is company's capital account what happens company will issue its shares okay also known as equity Okay, and the number of owners will be many, okay. Some portion of the capital will be invested by many number of owners Okay in the business. So, in case of company, the capital is known as equity share capital or you may also call it as equity, this was about capital drawings, part of capital used by the owner in the form of cash or goods for the personnel purposes is known as the drawings okay. In addition to this, if a business is in getting certain expenses on behalf of owner for the personal purpose, then it is also considered as a drawing. So, business owner of the business sometimes owner of the business may take some goods often assets or services are cash from the business for the personal use okay.

So, all these are for personal use they are known as joints okay and it will usually reduce the capital invested by the owner in the business. So, this was about drawings liability liability is an obligation or debt that the entity has to pay in future this obligation may be in the form of money, goods or even services. So, whenever there is some obligation in the form of money, goods or services, it is known as liability. liability is usually classified into two type according to the term of liability, one is long term liability, another one ish, short term liability. So the term of long term liability is more than a year. What does the example of long term liability say we have taken a loan from Bank the loan from Bank then loan from my entity.

So, this are the examples of long term liability. Now, short term liability, the duration of short term liability is less than a year. Okay, now let's see an example of a short term liability. See, this is our business. Okay, and this is Our vendor we have purchased the goods from the vendor and we will be paying the vendor one month Okay. So now as a business we have obligation to pay to vendor after one month.

So this is a liability since there is obligation in the form of money, this is a liability. Now this is usually known as a creditor or accounts payable Now, next this is a business Okay Mr. P Okay, now Mr. A is our client Okay, or a customer, Mr. A has given us some advance. Okay, for some services to be rendered in the future. Okay, so as this nurse, Mr. A has given us some money and we are obliged to provide him some services in the future. So again, this is a liability. Okay.

So these are some of the examples of short term liabilities. Okay. Now this was about what is a liability Assets assets are the economic resources of the business expressed in monitor dumb. So, those are the resources of the business okay, which is used for the purpose of production and it is expressed in monetary terms that is in terms of money. Now, let us see what the more details about how is the asset classified Okay. Now first classification of asset is on the basis of existence Okay.

That is whether a particular asset is physically in existence or not. So, on the basis of existence assets are classified into two types oneness tangible asset wellness intangible assets tangible assets can be touched or felt physically whereas, intangible assets cannot be touched or felt physically now, examples of tangible assets, machinery, furniture, office buildings Cash all these are examples of tangible assets. Examples of intangible assets are trademarks of copyrights, intellectual property, goodwill, all these are examples of intangible asset. Now, we will be seeing classification on of asset on the basis of convertibility assets on the basis of convertibility. So, what does convertibility convertibility means, how fast a particular asset can be converted into cash. So, in this assets may be classified as fixed assets, current assets.

So, fixed assets are tangible assets that are used for the purpose of business say your machinery bland furniture and fixtures land building etc. Now, if you see these types of asset they cannot be easily converted into cash since they are used for the purpose of business they will be kept in the business for a long term that does more than a year. So, all this assets are known as fixed assets. Now, current assets current assets are short term asset that will be converted into cash usually within a year okay. So, duration of a current asset is less than a year. So, what are the examples of your current assets you have daters or accounts receivable, then your stock cash bank balance then your prepaid expenses okay.

So, all these current assets okay. So on the basis of convertibility assets are classified into two types fixed assets and current assets. Whereas, on the basis of your existence, that assets are classified into two types, one is tangible assets, whereas other one is intangible assets. So that's all about the assets.