Many business owners work incredibly hard to grow their business – but still feel
unsure when it comes to accounting terms. Three of the most common areas of
confusion are assets, liabilities, and overheads.
If you’ve ever wondered:
• Is my laptop an asset or an expense?
• Is a loan a liability even if it helps my business grow?
• Are overheads the same as liabilities?
You’re not alone. In this blog, we’ll break these terms down in plain English, with practical examples you can relate to.
What Is an Asset?
An asset is something your business owns or controls that has value and helps the
business operate or generate income.
Think of assets as things that put money into the business or help you earn money.
Common Examples of Assets
• Cash in the business bank account
• Equipment and tools
• Computers, laptops, and phones
• Vehicles used for business
• Stock or inventory
• Money owed to you by customers (debtors)Key Question to Ask
Does my business own this, and does it provide future value?
If the answer is yes, it’s likely an asset.
Example:
You buy a laptop for £1,200 to run your business. Even though it cost money, it’s an
asset because it will be used over several years to help you earn income.
What Is a Liability?
A liability is something your business owes to someone else.
Liabilities represent future payments that will leave your business.
Common Examples of Liabilities
• Bank loans
• Bounce Back Loans or CBILS loans
• Credit card balances
• Supplier bills you haven’t paid yet (creditors)
• VAT owed to HMRC
• PAYE and National Insurance due
Key Question to Ask
Does my business owe this money now or in the future?
If yes, it’s a liability.
Example:
You take out a £10,000 business loan. The cash received is an asset, but the loan itself is a liability because it must be repaid.What Are Overheads?
Overheads are the ongoing day-to-day costs of running your business that don’t directly create a product or service.
They are often called operating expenses.
Common Examples of Overheads
• Rent
• Utilities (electricity, water, internet)
• Software subscriptions
• Insurance
• Office supplies
• Marketing costs
• Accountancy and bookkeeping fees
Key Question to Ask
Is this a regular running cost that keeps the business going?
If yes, it’s probably an overhead.
Example:
Your monthly bookkeeping fee is an overhead. It doesn’t create a product, but it supports the business.
The Key Differences at a Glance
Category What It Means Simple Way to Think About It
Assets What the business owns Helps the business earn moneyCategory Liabilities What It Means Simple Way to Think About It
What the business owes Money that must be paid out
Overheads Running costs Keeps the business operating
Common Mistakes Business Owners Make
1. Confusing Overheads with Liabilities
Overheads are expenses.
Liabilities are amounts still owed.
Example: An unpaid electricity bill is a liability until it’s paid. Once paid, it becomes an overhead expense.
2. Thinking Spending Money Means It Can’t Be an Asset
Many assets cost money upfront, but still have long-term value.
Example: Equipment, vehicles, and computers are often assets, not expenses.
3. Forgetting That Tax Can Be a Liability
VAT, PAYE, and Corporation Tax often catch business owners out because the money
feels like it’s already gone.
If it hasn’t been paid yet, it’s still a liability.
Why Understanding This Matters
Knowing the difference between assets, liabilities, and overheads helps you:
• Understand your financial reports
• Make better business decisions• Avoid cash flow surprises
• Speak confidently with your accountant or bookkeeper
It also gives you a clearer picture of how healthy your business really is – not just how much money is in the bank.
Final Thoughts
Accounting doesn’t have to be confusing. Once you understand the basic building
blocks, everything else starts to make more sense.
If you’re unsure how items should be classified in your own business, getting professional bookkeeping support can save you time, stress, and costly mistakes.
If you’d like help understanding your numbers or keeping your books in order, professional advice tailored to your business can make all the difference. Give us a call on 07891 734617 or drop us an email at info@whittlebookkeeping.co.uk and we would be
happy to help you.
