Assets put money in my pocket and liabilities take money out of my pocket it's as simple as that. If every month somthing is generating a negative cashflow it is a liability. If some day that liability is sold, only then is it an asset.
If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.
Money in - asset
money out - liability
Assets put money in my pocket and liabilities take money out of my pocket it's as simple as that. If every month somthing is generating a negative cashflow it is a liability. If some day that liability is sold, only then is it an asset.
If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.
Money in - asset
money out - liability
When you live in that house you are not paying rent so it is still generating a return even though it is not generating income.If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.
You have written that you agree with me and then go onto disagree with that I wrote!!! My definition is the accounting view.
Assets can be ascribed a value. These can be tangible (eg land) or intangible (eg goodwill).
Assets can be depreciated but can also be revalued upwards. The depreciation goes on a separate line on the balance sheet called 'Accumulated depreciation'. The other side is expensed in the Profit and Loss.
Liabilities are NOT depreciated. They are amortized (eg mortgage) and also expensed to the P&L
Just because an item is expensed or has related expenses, doesn't define whether the item is an asset or liability.
It is what it is, and is not subjective.
ps inflation has nothing to do with whether an item is an asset or a liability.
Firstly I can't see, from the quotation I used, where I disagreed, but anyway, it is irrelevant.
I know the realities of the accounting convention , I have spent a lot of money paying accountants to effectively do the taxation for my businesses.
The fact is that the only relevant thing that accountants do is cash flow projections and KPIs( which I have always done on my own anyway ). All the rest is just really for BAS / taxation..
Most have NFI about business, and often have no idea what value something is, can never ascertain the worth of processes and objects and misrepresent the real world.
I don't care if a liability can only be amortised, and assets depreciated. I don't care about the convention at all.
The convention is, and only is, of any use for taxation means.
I make no money from it, I make lots of money utilising assets and liabilities alike. I try to explain it to my accountants, but most accountants do not know how to make lots of money, so what do I care what they think.
Firstly I can't see, from the quotation I used, where I disagreed, but anyway, it is irrelevant.
I know the realities of the accounting convention , I have spent a lot of money paying accountants to effectively do the taxation for my businesses.
The fact is that the only relevant thing that accountants do is cash flow projections and KPIs( which I have always done on my own anyway ). All the rest is just really for BAS / taxation..
Most have NFI about business, and often have no idea what value something is, can never ascertain the worth of processes and objects and misrepresent the real world.
I don't care if a liability can only be amortised, and assets depreciated. I don't care about the convention at all.
The convention is, and only is, of any use for taxation means.
I make no money from it, I make lots of money utilising assets and liabilities alike. I try to explain it to my accountants, but most accountants do not know how to make lots of money, so what do I care what they think.
Change accountants.
Your right in that most are aspiring to be as wealthy as some of their clients.
But find an accountant or better a firm of accountants that put into practice for their own wealth creation those things that their clients do and you'll never moan about their fees again.
ouch.....why am I surprised by the total lack of understanding on this thread....(apart from the few exceptions who do understand accounting terms and concepts)
unbelievable.....the misconceptions about what an asset is.....
and to make things worse, you are here debating probably the biggest asset most people hold....their house or home....
NO
It doesn't matter whether it is producing income or not. An asset is an asset. A liability is a liability. They do not morph from one to the other.
Nothing personal - but many make the same mistake as you ie go through life using the wrong words to describe things and then finding it difficult to unlearn what they believed was right for their whole life.
If something can be valued in monetary terms, it is an asset.
When you live in that house you are not paying rent so it is still generating a return even though it is not generating income.
Just because you use tax accountants in your business doesn't mean that all accountants are tax accountants. There are Tax accountants(public), Tax accountants (private) Project accountants, Systems accountants, Forensic accountants, Management accountants, Commercial accountants, ......and so on.
Your view on accountants is akin to the following view on doctors "I been to visit a few GPs over the years and they all have no idea about how to perform neurosurgery! All doctors are therefore stupid!"
It doesn't matter whether you care about convention at all or not. An asset is an asset. A liability is a liability.
You pay rates, insurance, upkeep etc on any property regardless of whether it is owner occupier or investment (rented).Yes so it is a smaller liability than a lease would be, So it is a great idea to own your own home but you are still paying rates, insurance, upkeep etc. So it is a liability all the same.
I am not talking about strict accountanting terms. I am talking about how one should look at their own belongings and what the are putting their money into.
Many of the things that people call assets have no long term value, and constantly strip the person of cash flow.
Here is a video that explains what I mean.
http://www.youtube.com/watch?v=byRSKEw0oa8
You pay rates, insurance, upkeep etc on any property regardless of whether it is owner occupier or investment (rented).
Think of it like this.
Balance sheet:
Property is an asset. Loans attached to a property are a liability.
Income statement:
Rent is income. For an owner occupier this is represented by the rent saved in not having to rent a similar property. Loan interest, rates, insurance, upkeep etc are expenses.
Say a person owns a $2M dream home with no debt and it is their sole "asset". They are 65 and have spent their life contiunally trading up and putting money into their biggest "investment" the family home.
If you looked at their balance sheet you would think they are financally free because they have $2M worth of property debt free. However they can't stop working because once they stop working they will have no income to feed themselves and pay the rates and maintance on this dream home.
So I don't consider this $2m dream home an asset, Offcourse they can spend the next 20 years contiunally down sizing or taking out equity loans to fund their life style. But I can't see this as an ideal situation.
But a person that also had $2m worth of property in the form of 5 $400K houses and lived in one would be in a much better positon.
I would count their 5 houses as 1 x life style liabilty and 4 x income producing assets.
What then of the asset status of the 4x income producing properties if they largely financed by debt and costs (including interest)equals or exceeds income (rent) under your definition ?Say a person owns a $2M dream home with no debt and it is their sole "asset". They are 65 and have spent their life contiunally trading up and putting money into their biggest "investment" the family home.
If you looked at their balance sheet you would think they are financally free because they have $2M worth of property debt free. However they can't stop working because once they stop working they will have no income to feed themselves and pay the rates and maintance on this dream home.
So I don't consider this $2m dream home an asset, Offcourse they can spend the next 20 years contiunally down sizing or taking out equity loans to fund their life style. But I can't see this as an ideal situation.
But a person that also had $2m worth of property in the form of 5 $400K houses and lived in one would be in a much better positon.
I would count their 5 houses as 1 x life style liabilty and 4 x income producing assets.
What then of the asset status of the 4x income producing properties if they largely financed by debt and costs (including interest)equals or exceeds income (rent) under your definition ?
The lifestyle status is then the same (or worse) than the income poor person with the $2m home.
You are trying to define the asset status of property based on factors external to the property itself which is wrong. Its status as an asset is defined only by it's economic worth to others. The economic value of an owner occupier home lies in the fact that the owner does not have to pay someone else rent for a roof over their head.
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