Chapter 1 - Elements of Financial Statements

Question 1

• Definition

ASSET

Answer 1

A resource controlled by the entity, as a result of past events, which future economic benefits are expected to flow to the entity

Question 2

• Definition

LIABILITY

Answer 2

A present obligation as a result of past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

Question 3

• Definition

EQUITY

Answer 3

The residual interest in assets of the entity after deducting all its liabilities

Question 4

• Definition

INCOME

Answer 4

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets, or decreases in liabilities which results in an increase in equity, other than contributions from other equity participants

Question 5

• Definition

EXPENSES

Answer 5

Decreases in economic benefits during the accounting period through outflows, decreases of assets or increases of liabilities which result in decreases in equity, other than contributions to equity participants

Question 6

• Effect on Profit on the Accounting Equation

Answer 6

• Profit increases equity

* This is matched by an increase in assets of the business that amount to the difference between assets and liabilities

Question 7

• Profits or Losses

Answer 7

PROFIT = Increases in equity not resulting from contributions from equity participants

LOSSES = Decreases in equity not resulting to distributions to equity participants