Chapter 1: The Role of Accounting (Part 3) Flashcards
What are the elements of an accounting report?
Assets, liabilities, owners equity, revenues and expense
What are assets?
A present economic resource controlled by an entity as a result of past events
What are liabilities?
A present obligation of an entity to transfer an economic resource as a result of past events
What is owners equity?
The residual interest in the assets of an entity after the deduction of its liabilities, such as capital contributions and drawings
What is revenue?
An increase in assets or decrease in liabilities that results in an increase in owner’s equity, other than those relating to contributions from the owner
What is an expense?
A decrease in assets or increase in liabilities that results in a decrease in owner’s equity, other than those relating to distributions to the owner
What is the difference between an asset and an expense?
An asset is a present economic resource controlled by the entity which provides future benefit, whereas an expense is a decrease in assets and owner’s equity which consumes this future benefit
What does capital represent?
The amount of money contributed to the business by the owner
What do drawings represent?
The amount that the owner has withdrawn from the business during the reporting period
What are some common examples of revenues?
Sales, fees, interest, dividends, royalties, rental income and discount revenue
What are some common examples of expenses?
Cost of sales, wages, rent, depreciation, discount or interest expenses
What must all prepaid expenses be classified as?
A current asset in the balance sheet
Where does net profit go in a balance sheet?
Owners equity
How are drawings recorded in the balance sheet and why?
They are recorded in brackets in the owners equity section, because they represent a negative value
