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Elements of Financial Statements: Lesson 4

This document defines key elements of financial statements including accounting, assets, liabilities, equity, and financial performance. It explains that accounting provides quantitative financial information to help with economic decision making. Assets are resources owned that will provide future benefits, while liabilities are obligations to transfer resources to others. Equity is the residual interest in assets after deducting liabilities. Financial performance includes income from revenues and gains, as well as expenses and losses.

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Aices Jasmin Melgar Bongao
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20 views

Elements of Financial Statements: Lesson 4

This document defines key elements of financial statements including accounting, assets, liabilities, equity, and financial performance. It explains that accounting provides quantitative financial information to help with economic decision making. Assets are resources owned that will provide future benefits, while liabilities are obligations to transfer resources to others. Equity is the residual interest in assets after deducting liabilities. Financial performance includes income from revenues and gains, as well as expenses and losses.

Uploaded by

Aices Jasmin Melgar Bongao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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ELEMENTS OF

FINANCIAL
STATEMENTS
LESSON 4
ACCOUNTING
 a service activity whose function is to
provide quantitative information,
primarily financial in nature, about
economic entities, that is intended to
be useful in making economic
decisions.
An information system that
provides reports to stakeholders
about economic activities and
condition of a business.
Is a measurement and
communication process
designed to provide useful
and timely financial
information. This accounting
process includes :
1. IDENTIFICATION
 those events that is
financial in nature that should
be recognized and recorded.
2. RECORDING
 transactions may be
recorded manually, with use of
mechanical devices or with use of
computers.
3. CLASSIFYING
 is the grouping of similar items
together in order to make the
recording of many different
events and transaction more
efficient.
4. INTERPRETATION
 provides explanation and
develops relationships that give
meaning to the
BOOKKEEPING
 Is the systematic and
chronological recording of daily
business transactions that take
place in an enterprise
FINANCIAL
POSITION
ASSET
valuable resources owned by the entity.
a resource controlled by the enterprise
as a result of past events and from
which future economic benefits are
expected to flow in the enterprise.
Parts:
“Controlled by the enterprise “
 the ability to obtain the economic
benefits and to restrict the access of
others.
Example: an entity being the sole
user of its plant and equipment, or
by selling idle assets.
“Past events”
 the event must be past before an
asset can arise.
Example: equipment will only become
an asset when there is the right to demand
delivery or access to the asset’s potential.
Dependent on the terms of the contract, this
may be on acceptance of the order or on
delivery.

“Future economic benefits”
these are evidenced by the
prospective receipt of cash.
This could be cash itself, an
account receivable or any item
which may be sold.
An asset may be:
Used singly or in
combination with other
assets in the production of
goods or services to be sold
by the enterprise;
Exchanged for other
assets;
Used to settle a
liability; or
Distributed to the
owners of the
enterprise
Liabilities
 obligations of the entity to
outside parties who have
furnished resources.
“Obligations”
these may be legal or not. For
example, the year end tax liability
relates to the year’s events but in
law this liability does not arise until
it’s assessed some time later.
 “Transfer economic benefits”
 this could be a transfer of cash,
or other property, the provision of a
service or the refraining from
activities which would otherwise be
profitable.
“Past transactions or events”

“Complementary nature of
assets and liabilities” – as
should be evident from the above,
assets and liabilities are seen as
mirror images of each other.
Settlement of a present obligation may occur in a
number of ways:
Payment of cash
Transfer of other assets
Provision of services
Replacement of that obligation with
another obligation
Conversion of the obligation to equity
Liabilities include notes payable,
accounts payable, accrued liabilities,
unearned revenues, mortgage
payable, bonds payable, and other
debts of the enterprise.
Equity
 the residual interest in the
assets of the enterprise after
deducting all its liabilities.
May pertain to any of the following depending
on the form of business organization
In a sole proprietorship, there is only one
owner’s equity account because there is only
one owner.
In a partnership, an owner’s equity account
exists for each partner.
In a corporation, owner’s equity or
stockholders’ equity consists of
share capital, retained earnings
and reserves representing
appropriations of retained
earnings among others.
Performance
Income  increase in economic benefits during
the accounting period in the form of inflows or
enhancements of assets or decreases of
liabilities that results in increases in equity,
other than those relating to contributions from
equity participants.
a. Revenue  arises in the course of the
ordinary activities of an enterprise and is
referred to by a variety of different names
including sales, fees, interest, dividends,
royalties and rent.
b. Gains  represent increases in economic
benefits and as such are no different in
nature from revenue.
Expenses  decreases in economic
benefits during the accounting period in the
form of outflows or depletions of assets or
incurrences of liabilities that result in
decreases in equity, other than those
relating to distributions to equity
participants.
There are various classes of expenses but they
are generally classified as cost of services
rendered or goods sold, distribution or selling
expenses, administrative expenses or other
operating expenses.
Losses – represent decreases in economic
benefits and as such are no different in nature
from other expenses .

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