Question

According to our discussion, assets and liabilities each have 3 required characteristics. In other words, what are the three (3) essential characteristics for an asset? What are the 3 essential characteristics for a liability?

Answer 1

An asset has three essential characteristics:

(a) it embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows,

(b) a particular entity can obtain the benefit and control others’ access to it, and

(c) the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred.

A liability has three essential characteristics

1. It is a present obligation that entails settlement by probable future transfer or use of cash, goods, or services.

2. It is an unavoidable obligation

3. the transaction or other event creating the obligation has already occurred.