Elements of Financial Statement

Elements of Financial Statement

July 21, 2011

Here in this free online accounting training tutorial you will learn about some of the key elements of Financial Statements:


assets are the resources owned by the company. Assets are considered as Probable future economic benefits. Assets are acquired or controlled by any company which is resulted from previous business transactions or economic events. A company its assets for continuing operational activities. In any business, this future economic benefit of assets eventually results in cash inflows. Cash, equipments ts receivable, furniture, land etc are example of assets.

Liabilities: liabilities are existing debt and obligation that are owed by the company. Liabilities basically come up from present obligations of a business or entity to transfer assets or provide services to other companies in the future resulting from of previous transactions and economic events. Liabilities often referred as possible future sacrifices of economic benefits. Some common liabilities of a company are accounts payable the amounts owed by the company to suppliers, the notes payable the amounts which is owed to banks or others, and mortgages payable the amounts that owed for purchased property, such as land or buildings.

Equity: The ownership claim on total assets of the company referred as owner™s equity. It is determined after total liabilities are deducted from total assets. ‘ The assets of any company are usually claimed by either creditor or owners. Since the creditor™s claim should be paid before ownership claims, owner™s equity is also referred to as residual equity. The owners equity section of a corporation are called stockholders equity ant the owners are referred as stockholders or shareholders

Investment by Owners: if the owner invests money in the business then in net assets of that business enterprise increases which is resulted from transfers to the net assets from other entities with economic value in order to increase ownership interests or equity section in it. Assets are the most common example of received as investments by owners. There are other example of received as investment by owner such as services or satisfaction or conversion of liabilities of the enterprise.

Distribution to Owners: These transactions bring the reverse effect in the net asset. Distribution to owner decreases in the net assets of a company which come from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. Distributions to owners decrease the ownership interests of a company.

Comprehensive in Income: the business transactions and other economic events and actions from non-owner sources bring changes in the net assets of any economic entity during a particular accounting period. Comprehensive income consists of all changes of an equity section during an accounting period except those which resulting from investments by owners and distributions to owners.

Revenues: Revenue is the amount of assets which is created through operational activities of business. Revenues are considered as the gross increase in owner™s equity that resulted from business activities entered into the entity for the purpose of earning income. Revenues could be acquired from selling products, providing services, renting property, and lending money. There are some common sources of revenue such as sales, fees, services, commissions, interest, dividends, royalties, and rent. Revenues generally increase in the net’ ‘ asset. According to the nature of the business, the sources of revenue could be different ant name also could be different.

Expenses: Expenses are the amount of assets that is consumed through business operations. Expenses are those costs which are incurred in normal course of business operations in order to generate revenues. Employee salaries and utilities are two most common examples of expenses. Expense decreases the owner™s equity that result from operating the business activities. Rent expense, interest expense and property tax expense are also the examples of expenses.

Gains: gains increases in equity (net assets) from secondary business transactions of any company and from all other transactions and other economic events affecting the entity during a particular period except those that result from revenues or investments by owners.

Looses: Decreases in equity from incidental transactions of an entity and from all other business transactions and other events and actions affecting the business during a period except those that result from expenses or distributions to owners.

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