Assets and liabilities
An asset has economic value; a liability represents debt or a financial obligation.
Definition
An asset has economic value; a liability represents debt or a financial obligation.
Why this concept matters
Distinguishing them is necessary to calculate net worth correctly.
How it works
Assets are totalled, liabilities are totalled separately, then the second total is subtracted from the first.
Calculation guide : Net worth = total assets − total liabilities
What to watch
Asset values and liability balances should be updated regularly.
Simple example
A £250,000 home with £160,000 left on the mortgage contributes £90,000 to net worth.
Example currency : United Kingdom (GBP). The reference country controls the example currency.
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