How To Decrease Liabilities And Increase Assets

This is the question that every businessman and entrepreneur wants to ask that, “How to Decrease Liabilities And Increase Assets”. Before reading this article, you can read my article about Accounting Equation, because reading this article helps you in understanding the logic of this question and, hopefully, you will get the answer.

Basically, this question is not asking in the right way, because you can increase the assets and decrease liabilities upto some extent. For Instance, if you increase assets, i.e., Cash, then you have less stock or inventory in your warehouse and ultimately it reduces purchases of the business. On the other hand, if you have less Cash in hand, but you have good quantity stock in the warehouse to maintain working conditions of the business, because your Working Capital is good to meet your current liabilities.

So, the balance situation is good for the Stabilization of The Business.

So your business’s Assets should be more than your Liabilities but there must be a balance between them. There is also “Distinguish Between Liabilities And Owner ‘s Equity”.

Following are the steps to increase Assets and Decrease Liabilities:

1. Pay Your Business’s Bills through Cash and not on Credit Basis, if sufficient amount of Cash is available in the hand of business.

 

2. Avoid Unnecessary Expenses to increase assets and liabilities because valuable expenses are effective in increasing assets and ultimately assets generate revenues for the business in the future.

3. Pay salaries of employees on time in order to render services to the business and smooth flow and running of the business

4. Take necessary steps on Cash Flow Statement, so that sufficient amount of Cash in Hand with the Business.

5. Always try to purchase the assets and meet daily expenses on Cash Transactions if business has sufficient amount of capital in hand.

From the above, we can conclude that a business needs to take necessary steps to increase assets and decrease liabilities under the condition of Accounting Equation, otherwise too much assets can be headache for the business, because business has less amount of Stock or Inventory In Warehouse to sell to the customers and that declines the sales and annoy the loyal customers. On the other hand, too much decreasing liabilities show that business is trying not to meet its daily expenses, pay bills, salaries, etc.