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Basic Terms in Accounting - Solvent Person vs. Insolvent Person

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Topics

  • Definition: Solvent Person
  • Definition: Insolvent Person
  • Comparison
  • Real-Life Examples
Maharashtra State Board: Class 11

Definition: Solvent Person

When a person’s assets (everything they own) are greater than or equal to their liabilities (everything they must pay off), they are called solvent. A solvent person can pay off all their debts and is considered financially strong. 

Maharashtra State Board: Class 11

Definition: Insolvent Person

When a person’s liabilities are greater than their assets, they are called insolvent. An insolvent person cannot pay all their debts and may need help from a court. 

Maharashtra State Board: Class 11

Comparison

Criteria Solvent Insolvent
Value of Assets ≥ Liabilities < Liabilities
Can pay debts? Yes No
Financial Status Healthy/Sound At risk/Unstable
Maharashtra State Board: Class 11

Real-Life Examples

Criteria Solvent Person Insolvent Person
 Situation Ananya owns a car and savings worth ₹1,00,000; she owes ₹60,000. She can easily sell her assets to pay off all debts—Ananya is solvent! Rahul owns a bike and some gadgets worth ₹15,000, but he owes ₹40,000. Even if he sells everything, he can’t pay all debts—Rahul is insolvent!
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