Question

You might need to conduct some research of your own to complete this activity. Briefly describe (30 to 50 words each) what each of the terms refer to: Assets. Liabilities. Expenses. Equity. (please answer from the perspective of Australian Accounting Environment) (Please type up your answer)

Answer 1

Answer:

Elements of Financial Statements:

(1) Assets:- An asset is a resource controlled by the enterprise as a result of past events from which future economic benefit are expected to flow to the enterprise.

Recognition criteria;

• Probable future economic benefit inflow beyond the current year and
• Cost or value can be measured reliably.

(2) Liabilities:- A liability is a present obligation of the ebterprise arising from past events, the settlement of which is expected to result into an outflow of economic benefit from the entity.

Recognition Criteria

• Probable economic benefit outflow and
• Amount of settlement can be measured reliably.

Equity:- Equity is the residual interest in the net assets ie, ( assets less liabilities). ie, the fund contributed by owners and reserves and surplus.Also known as "share capital", "net worth" or "stockholders' equity". Shareholders' equity comes from two main sources. The first and original source is the money that was originally invested in the company, along with any additional investments made thereafter. The second comes from retained earnings which the company is able to accumulate over time through its operations. In most cases, the retained earnings portion is the largest component.

Expense:- Expenses are the decrease in economic benefit during accounting period in the form of outflow or depletion of assets or incurrence of liabilities that result in decrese in equity, other than those relating to distribution to equity participants.

Expense includes,

• General expenses ie which arise in ordinary course of business. eg. cost of good sold, salaries, professional fees, etc.
• Losses ie, other items which may or may nit arise from ordinary activities. eg. loss on sale of fixed asset, decrease in investment value.

Recognition Criteria;

• Decrease in future economic benefit arises; and
• it can be measured reliably.

Income:- Income are the increase in economic benefit during accounting period in the form of inflow or enhancements of assets or decrease in liabilities that result in increase in equity, other than those relating to contribution from equity participants.

Income includes,

• Revenue ie, which arise in ordinary course of business. eg. Sales, fees, interests, etc.
• Gains ie, other items which may or may nit arise from ordinary activities. eg. profit on sale of fixed asset-disclose seperately.

Recognition Criteria;

• Increase in future economic benefit arises; and
• it can be measured reliably.