2.3: Elements of Financial Statements Flashcards
What are the basic elements of financial statements?
The basic elements of financial statements include assets, liabilities, equity, revenues/income, expenses, and gains/losses.
These elements represent the key components that measure an entity’s performance and financial position.
What are the three essential characteristics of an asset?
An asset represents a** present economic resource**—a right with the potential to produce economic benefits.
The entity must have **control **over that resource.
The resource must result from a past transaction or event.
What are the three essential characteristics of a liability?
A liability represents a present duty or responsibility that cannot be practically avoided.
It requires the entity to transfer an economic resource.
The obligation arises from a past transaction or event.
What is equity in financial statements?
Equity is the residual interest in an entity after deducting its liabilities from its assets.
It represents the** ownership interest**, which includes items such as common shares, retained earnings, and under IFRS, accumulated other comprehensive income.
How are revenues/income defined under ASPE and IFRS?
ASPE: Revenues are increases in economic resources from an entity’s ordinary activities (e.g., rental income for a real estate company).
IFRS: Income is defined as increases in assets or decreases in liabilities, other than those from contributions by shareholders, that result in increases in equity.
How are expenses defined under ASPE?
Expenses are decreases in economic resources, either by outflows or reductions of assets or by the incurrence of liabilities, that result from an entity’s ordinary revenue-generating activities.
What are gains and losses in financial statements?
Gains: Increases in equity (net assets) from peripheral or incidental transactions.
Losses: Decreases in equity (net assets) from peripheral or incidental transactions.
Gains and losses do not result from ordinary business operations but from other transactions such as selling assets.
What is comprehensive income under IFRS?
Comprehensive income includes both net income and other comprehensive income (OCI).
OCI includes** revenues, expenses, gains, and losses not recognized in net income but in the statement of comprehensive income**, such as revaluations of assets, foreign currency translation adjustments, and gains/losses on certain investments.
