What are Active and Passive Assets in Accounting
Actives and passives are key elements in a company's accounting, as it's from these values that balances and forms of the company's financial situation are made. It is mandatory to know what each is to be able to compare between active and passive, to learn the state of the company's accounts. That's why oneHOWTO would like to explain what active and passive assets are in accounting.
What are actives and passives used for?
Active and passive are the names of both parts of a balance- also known as general balance or situation balance- the financial report that reflects the company's financial situation in a specific moment.
This report serves as a picture of the financial situation and, if we have enough knowledge, we can do it ourselves or ask accounting experts to do it for us. You can also use an online account manager, who can also come in handy, as they are professionals at our service and will help us maintain our business accounts up-to-date. Moreover, knowing active and passive assets will allow you to calculate total assets in accounting too.
What is an active asset?
An active asset is the range of goods, rights and other resources that the company has, may they be tangible or intangible, from which it is probable that the company may obtain benefits in the future.
We can distinguish several kinds of actives:
- Non-current active assets: goods and rights acquired with the intention of staying within the company for more than a year, which haven't been acquired for selling purposes; such as machinery and real estate.
- Current active assets: goods and rights acquired with the intention of remaining in the company for less than a year; for example, stock.
What is a passive asset?
Passive assets, on the other hand, are debts the company owes, including obligations and it represents what is owed to third parties: bank payments, salaries, providers, taxes ...
To classify passive assets we can separate them in:
- Long-term liabilities: own funds owned by the Capital holders.
- Current liabilities: debts the company has with third parties and must be paid back to providers, banks and other parties.
Now you know what active and passive assets are, you can learn how to calculate total assets in accounting too!
Main differences between active and passive assets
Now you know what both active and passive assets are, let's take a look at the main differences between the two:
- Active assets can easily be interchangeable, whereas passive assets are within the company for a longer period of time.
- Active assets allow flexibility, ensure there are no losses within the company and passive assets are always indexed and can be monitored much better than active assets.
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