Loss an asset ?profit a liability?

Question

plz explain in simple language how is loss an asset n profit a liability?

i think profit is a liability from business point of view coz it has to be paid to the owners..

am i right?

Answer 1

I do not know who is teaching you, but they have it backwards. Unless they are talking from a religious poverty point of view.

Companies are in business to make a profit. Profit is the goal of every business (except for a non-profit business). A loss is not an asset it is a loss, it is also not a liability. A loss is not a good thing. An Asset is a good thing.

Ask whomever is teaching you to explain what they are telling you. You want to ask them WHY they are saying that.

Answer 2

Profit is income(revenue) that would be reported on an (income statement).  

Answer 3

You are right to look at it from the organisations point of view. With a sole trader, for example, the accumulated profits less losses represents the owners equity. If for arguments sake, the business was sold at the date of the Balance Sheet for the exact values shown recorded therein, then the net figure realised would equal the owners equity.

In the case of a Limited Company, the owners equity (shareholders) is represented by accumulated reserves, which includes accumulated profits less losses. Again, all things being equal, this is the shareholders stake in the business.

The above is a very much simplified, because a business is dynamic and changes from day to day and includes many estimates in determining balance sheet valuations. There are other complications such as non distributable capital profits, share premium a/cs etc, unissued share capital etc.

With a Limited Company, shareholders own a part of the Company according to the number of shares held, and can be transferred following sale of the shares. Unlike trade liabilities, the shareholders equity would not normally be repaid unless the Company was wound up. So, try to think of it as the 'net worth' of the Company rather than as a liability.

Answer 4

You either own something; car, computer, cash etc.. (Asset) or you owe money; overdraft, loan etc... (Liability).

When you increase an asset you debit it and credit it to decrease it.

When you increase a liability you credit it and debit it to decrease it.

What confuses people is that they operate a bank account and when they pay money in, you think of crediting your account. This is from the bank's point of view because you gave/loaned the bank the money and a loan is a liability. The bank increases the liability by crediting your account because you're a creditor.

Answer 5

Profit is NOT a liability.  It flows into the equity part of the balance sheet.  It does NOT have to be paid out to the owners; it can be reinvested into the business.

I've never read where a loss is an asset.  A loss shows up as a DEBIT on the balance sheet, but this is also in the EQUITY part of the balance sheet.  Debits in the equity section represent a reduction of equity.