The elements of the financial statements
In order to appropriately report the financial performance and position of a business the financial statements must summarise five key elements:
Assets
An asset is a resource controlled by the entity as a result of past events from which future economic benefits are expected to flow to the entity. For example, a building that is owned and controlled by a business and that is being used to house operations and generate revenues would be classed as an asset.
Liabilities
A liability is an obligation to transfer economic benefit as a result of past transactions or events. For example, an unpaid tax obligation is a liability.
Equity
This is the 'residual interest' in a business and represents what is left when the business is wound up, all the assets sold and all the outstanding liabilities paid. It is effectively what is paid back to the owners (shareholders) when the business ceases to trade.
Income
This is the recognition of the inflow of economic benefit to the entity in the reporting period. This can be achieved, for example, by earning sales revenue or through the increase in value of an asset.
Expenses
This is the recognition of the outflow of economic benefit from an entity in the reporting period. This can be achieved, for example, by purchasing goods or services off another entity or through the reduction in value of an asset.
Categorisation of assets and liabilities
There are some additional rules with regard to the classification of assets and liabilities that relate to the length of time they will be employed in the business.
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Created at 10/23/2012 11:34 AM by System Account
(GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
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Last modified at 11/30/2012 11:36 AM by System Account
(GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
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