Question

Identify the elements of financial statements described in the frame, and define them

Answer 1

Elements of financial statements are:

Financial Statements contain five main elements of the entity’s financial information, and these five elements of financial statements are:

• Assets,
• Liabilities,
• Equities,
• Revenues, and
• Expenses

In Balance Sheet, there are three main elements contain on it such as Assets, Liabilities, and Equities. In the income statement, there are two key elements contain on it such as revenues and expenses. All of these elements are clearly defined and explained in the IASB’s Framework.

1) ASSETS : The official definition of assets are defined by IASB’s Framework for preparation and presentation of financial statements are the resources control by the entity as the result of past events and from which the future economic benefits are expected to flow the entity.

Here are examples of assets:

• Land
• Building
• Property
• Computer equipment
• Cash in bank
• Cash on hand
• Cash advance
• Petty cash
• Inventories etc.

2) LIABILITIES : The official definition of liabilities define by IASB’s Framework for preparation and presentation of financial statements are the present obligations arising from the past events, the settlement of which is expected to result in an outflow from entity resources embodying economic benefit.

Here are examples of Liabilities in Financial Statements:

• Bank Loan
• Overdraft
• Interest payable
• Tax payable
• Account payable
• Noted payable etc.

3) EQUITIES : Equity is officially defined by IASB’s Framework for preparation and presentation of financial statements, is the residual interest in the assets of the entity after deducting all its liabilities.

The items that records in equity are:

• Share capital
• Retain earning or retain losses
• Revaluation gain
• Dividends payment

4) REVENUES : The official definition of revenues defined by IASB’s Framework for preparation and presentation of financial statement is increase in the economic benefits during the accounting period in the form of inflows or enhancements of assets or decrease of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

The example of revenues is sales revenues from selling of goods or rendering of services, interest incomes from banks deposits, as well as a dividend received from equity investments.

5) EXPENSES : The official definition of Expenses defined by IASB’s Framework for preparation and presentation of financial statement is decreased in economic benefits during the accounting period in the form of outflows or depreciation of assets or incurred of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

Some example of expenses are:

• Cost of goods sold
• Salaries expenses
• Depreciation
• Interest Expenses
• Tax expenses
• Utility expenses
• Transportation Cost
• Marketing Expenses
• Rental Expenses etc.