the first thing we must do is make sure that you have a clear understanding of the most important
accounting words right from the beginning the only reason why people think that the accounting words
sound complicated is because the words are used in everyday life but when we use these
words we're not using them the same way that we use them in accounting we're using them as
a metaphor for the way we would use it normally in accounting for example the word asset we all know
the metaphor it means something good or helpful for example you might say she's an asset to the
team however the real meaning of the word asset is anything of business owns that has value now
most assets are tangible assets because you can physically touch them like a car or a furniture
item or a bank account but there are other types of assets that a company could own like copyrights
and patents and things that you can't physically touch but things the company did pay for that they
own that has value that will help the company earn money into the future so you see asset
is an idea it's something you can own that has value whether you can touch the item or not we
even have the same issue with the word liability the word liability is usually used as a metaphor
it usually means something that's a hindrance or something that would work against you but
the real meaning of the word liability is money or some kind of obligation the company must pay
give or do in the future so if the company took a small business loan that would be an example of a
liability that you would have to record in the company books and records if the company had a
mortgage for a house that the company owned or a building that the company owned that would
also be a liability of the company what if the company took a car loan well we know the car
would be the asset but the loan would be the liability and of course if the company had a
company credit card or let's say the owner had a company credit card the company credit card would
be on the books and records as a liability just like the bank account would be on the books and
records as an asset but remember a liability can also be a future obligation to do something for
example if a customer paid in advance before getting a product or a service between the
moment we got the money at the moment we give the product or service our company books and
records must reflect that we have this liability a future obligation to pay give or do something
you probably already know that the three most important accounting words that we learn at the
beginning are assets liabilities and owner's equity but I think owner's equity deserves its
own special video because all the other ideas of accounting come from the idea of owner's equity
so don't forget to tune in to the next video what is owner's equity a conceptual overview
I thank you for listening to my definition of these words I know they're going to help you