The amount by which assets exceed liabilities is known as capital. This is a crucial concept in finance and accounting. Here's a simple explanation:
Assets are things of value that an individual or a company owns. They can include items like cash, property, equipment, and investments. They represent what the entity owns or is owed.
Liabilities are the obligations or debts that an individual or a company owes to others. They can include loans, mortgages, and other forms of debts or financial responsibilities. They represent what the entity owes to others.
The capital, also known as equity, is the net value that remains after all liabilities have been subtracted from all assets. In a simplified equation, it can be expressed as:
Capital = Assets - Liabilities
Therefore, if a company has more assets than liabilities, the excess amount is positive, indicating a strong capital position. This is an important measure of financial health, showing the remaining value available to the owners or shareholders after all debts have been paid.