Question

Analyze the relationships between these elements below:

— Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

— Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

— Equity or net assets is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest. In a not-for-profit organization, which has no ownership interest in the same sense as a business enterprise, net assets is divided into three classes based on the presence or absence of donor-imposed restrictions—permanently restricted, temporarily restricted, and unrestricted net assets.

— Investments by owners are increases in equity of a particular business enterprise resulting from transfers to it from other entities of something valuable to obtain or increase ownership interests (or equity) in it. Assets are most commonly received as investments by owners, but that which is received may also include services or satisfaction or conversion of liabilities of the enterprise.

— Distributions to owners are decreases in equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. Distributions to owners decrease ownership interest (or equity) in an enterprise.

— Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from no owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

— Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

— Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.

— Gains are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.

— Losses are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from expenses or distributions to owners

Answering the following questions:

• How are the 10 financial statement elements related to one another? How do they differ?
• Identify where each of these elements are reported in the financial statements.

Answer 1

1- How are 10 financial statement elements related to one another ?

Items reported on the financial statements are organized into classes or categories called elements. The ten elements of financial statements are:
1. Assets
2. Liabilities
3. Equity (Stockholders' Equity)
4. Investments by Owners (Contributed Capital)
5. Revenue
6. Expenses
7. Distributions (Dividends)
8. Net Income
9. Gains
10. Losses

Financial statements are all interrelated because they present the different aspects of the same business transactions.

The balance sheet reports the assets, liabilities, and equity of a business at a specific moment. Other financial statements report the changes in the various elements of a balance sheet over an accounting period.

The balance sheet stores the cumulative effect of all accounting transactions since the commencement of business. But what makes the balance sheet unique from other types of financial statements is that it reports the accounting information for a specific point in time (i.e., day) rather than a period.  

three periodic financial statements include the cash flow statement, the income statement, and the statement of changes in equity. These reports provide information about the changes in the various elements of a balance sheet over an accounting period:

• The cash flow statement tracks the movement of money reported in the balance sheet.
• The income statement provides a detailed account of the change to equity caused by a business’s operating activities during an accounting period.
• Statement of changes in equity tracks the investments made by the business owners as well as any distributions made to them during an accounting period such as dividends.

The information contained in the periodic financial statements is supplemental to the information contained in the balance sheet, so it is reasonable to expect some interconnection between them.

The following diagram gives a bird’s eye view

2_. How do they differ ? financial statements to monitor performance, identify problems in the early stages and justify financing, as well as many other functions. Despite the differences among the statements, they are interconnected and together illustrate the company's financial position, daily operations and projected stability. Understanding how each of the common financial statements works will help you prepare your accounting statements accurately at the end of the period.

Balance Sheet

The balance sheet lists the assets a company has, including equipment, property and intellectual property. Also included in a balance sheet are liabilities, including immediate expenses, short-term and long-term debt. The final section of a balance sheet includes shareholders' equity or net worth. This section equals the difference between the assets and the liabilities, which indicates how much money the business would have in the event of a total asset liquidation and settlement of liability accounts. Balance sheets reflect the information as of a specific date as stcome Statement.

The income statement illustrates the amount of money a business earned within a specified time span, such as a fiscal quarter or a fiscal year. The income sources include sales revenue, interest and sale of property. The income statement includes the expenses that directly relate to the income for that period. The expenses listed on an income statement include employee salaries, overhead expenses and administrative costs. The difference between the two is highlighted as net income. If the business has shareholders, an earnings per share line is included based on the net income figures.

Retained Earnings

Retained earnings represent the amount of money the business holds after issuing dividends to stockholders. The retained earnings statement illustrates the current retained earnings account balance, the net profit or loss from the income statement and any dividends issued. The balance after accounting for these factors is the final retained earnings for the accounting and reporting period.

Cash Flow

The cash flow statement illustrates where the company's cash is distributed. The first section shows the cash activity from operating expenses, such as revenue from sales, salary expenses and administrative costs. The next sections detail any investments or dividends during the period. The final calculations reflect the decrease in overall cash from the previous period to the current statement.

3_ Identify where each of these elements are reported in one financial statements ?

Of these elements, assets, liabilities, and equity are included in the balance sheet. Revenues and expenses are included in the income statement. Changes in these elements are noted in the statement of cash flows.

the revenue reported on the income statement may not have been collected or expenses may not have been paid. That's where a cash flow statement comes in. Unlike the accrual-based income statement, a cash flow statement focuses only on money changing hands. For instance, customer payments affect cash flow, and conversely, accounts receivable doesn't. One way to create the cash flow statement is to take the income statement and eliminate any revenues you have not collected and expenses you have not paid. If you're running your business using cash accounting, you don't need a separate cash flow statement.