"Liabilities are what the firm 'owns' to others. Is 'owns' a typo?
Also with definition of Assets I would add 'owns or has control over' or something like that. For example in Banking the banks hold their deposit liabilities as assets, so the concept of owning assets is not so straightforward.
2) Deposits held at a bank are liability of that bank. Having depositors is an "asset" for the bank in that they are a source of cheap funding and a customer for cross-sold services. Analysts are free to assign a market value to them based on that premise. However, they cannot be accounted for on the balance sheet as assets, as the balance sheet would no longer balance - making a loan would create a loan asset and a deposit asset.
I'm confused by your reply. Firstly, we have to accept Assets comprise Liabilities + Equity. Banks hold deposits as assets and credit the customer liability account (IOU) with the deposit amount:
Reserves debited $10...
Customer credited $10...
In the case of loan:
ASSETS
Loan A/c debited $100
Reserves $10
Total Assets $110
LIABILITIES
Deposits $10
Borrower $100
Total liabilities $110
A = L
I don't understand your '"balance sheet would not balance" comment.
I was tied up when that comment came, so I missed responding.
The deposit is showing up under the Liability heading, even in her example. Her stating that “assets = liabilities” (if equity is ignored) does not mean that the liability is the same thing as an asset.
If we put the $100 deposit on the asset side of the balance sheet, the bank would create $200 in assets when it makes a loan - the $100 loan, and the $100 deposit - without any change to assets/liabilities.
"Liabilities are what the firm 'owns' to others. Is 'owns' a typo?
Also with definition of Assets I would add 'owns or has control over' or something like that. For example in Banking the banks hold their deposit liabilities as assets, so the concept of owning assets is not so straightforward.
1) That was a typo, thanks.
2) Deposits held at a bank are liability of that bank. Having depositors is an "asset" for the bank in that they are a source of cheap funding and a customer for cross-sold services. Analysts are free to assign a market value to them based on that premise. However, they cannot be accounted for on the balance sheet as assets, as the balance sheet would no longer balance - making a loan would create a loan asset and a deposit asset.
I'm confused by your reply. Firstly, we have to accept Assets comprise Liabilities + Equity. Banks hold deposits as assets and credit the customer liability account (IOU) with the deposit amount:
Reserves debited $10...
Customer credited $10...
In the case of loan:
ASSETS
Loan A/c debited $100
Reserves $10
Total Assets $110
LIABILITIES
Deposits $10
Borrower $100
Total liabilities $110
A = L
I don't understand your '"balance sheet would not balance" comment.
Brian could you please answer her. I would very much like to understand this too.
I was tied up when that comment came, so I missed responding.
The deposit is showing up under the Liability heading, even in her example. Her stating that “assets = liabilities” (if equity is ignored) does not mean that the liability is the same thing as an asset.
If we put the $100 deposit on the asset side of the balance sheet, the bank would create $200 in assets when it makes a loan - the $100 loan, and the $100 deposit - without any change to assets/liabilities.
THANKS!