10. Framework Definitions Flashcards
What is the framework definition of an Asset?
An asset is a present economic resource controlled by the entity as a result of past events.
What are the three elements of an Asset?
- A business that owns an asset has a right to an economic resource
- As asset has the potential to produce economic benefits
- A business has control over an asset and can decide how it will be used.
What is the framework definition of a Liability?
A liability is a present obligation of the entity to transfer an economic resource as a result of past events.
What are the three elements of a Liability?
- Existence of an obligation (a duty to another party that cannot be avoided)
- A business that has a liability has a duty to transfer an economic resource
- A liability exists because of a transaction that took place on a past date
What is the framework definition of Equity?
Equity is the residual (that is, remaining) interest in the assets of the entity after deducting all its liabilities. The equity of a business is found as follows: Assets – Liabilities = Equity.
What is the framework definition of an Income?
Income is increases in assets or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
What are the three elements of an Income?
- An income transaction will either increase an asset or decrease a liability
- An income transaction results in an increase in equity
- An asset contributed to a business by the owner is not income
What is the framework definition of an Expense?
Expenses are decreases in asset or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
What are the three elements of an Expense?
- An expense transaction will either decrease an asset or increase a liability
- An expense transaction will result in a decrease in equity
- An asset that is withdrawn from a business by the owner is not an expense
