Financial Assets and Financial Liabilities
Understanding the Two Sides of a Contract
Financial assets provide future economic benefits, while financial liabilities require future transfers of cash or other financial assets. Every financial instrument creates corresponding rights and obligations for the parties involved. When the instrument is equity, the issuer records an equity instrument rather than a liability.
Tip
Think of assets as rights to receive value and liabilities as obligations to provide value; equity instruments represent ownership residual interests.
Summary
Every financial instrument creates an asset for one party and a liability or equity instrument for another.