What is the relationship between business assets and liabilities?

Assets are the resources owned by a business that have economic value and can be utilized to generate revenue. This includes items such as cash, inventory, property, equipment, and accounts receivable. By understanding that assets represent ownership and value to the business, one can see their critical role in the overall financial health and operational capability of the company.

In contrast, liabilities are the obligations a company has to settle debts or provide future services. They are what a business owes to other entities which include loans, accounts payable, and mortgages. Recognizing the distinction between assets and liabilities helps in assessing a company’s net worth, as the difference between total assets and total liabilities indicates equity, which is a reflective measure of the company's financial stability.

Thus, acknowledging that assets are what a business owns provides a foundational understanding of the company’s financial position, an essential concept in business law and ethics.