Concept Statement 6

Question 1

What does it mean to be an element of the financial statements?

Answer 1

The building blocks of the financial statements

Question 2

What are the 4 elements?

Answer 2

1) Assets
2) Liabilities
3) Income
4) Expenses

Question 3

What are the 2 different types of elements?

Answer 3

1) Point in Time

2) Intervals of Time

Question 4

What are some examples of Point in Time elements?

Answer 4

Assets
Liabilities
Equity

Question 5

What are some examples of Intervals of Time elements?

Answer 5

Revenues
Expenses
Gains & Losses
Investments by Owners
Distributions to Owners

Question 6

What is the definition of an Asset?

Answer 6

Probable future economic benefit obtained or controlled by the company as a result of past transactions or events

Question 7

What are the characteristics of an Asset?

Answer 7

1) Probable future economic benefit
2) Entity can obtain & control others access to it
3) Right to control as already occurred

Question 8

What are the common characteristics possessed by ALL Assets?

Answer 8

1) Service Potential

2) Future Economic Benefit

Question 9

What is the definition of a Liability?

Answer 9

Probable future economic sacrifice arising from present obligations to transfer assets or provide services in the future as a result of past transactions or events

Question 10

What are the characteristics of a Liability?

Answer 10

1) Present duty or responsibility to settle future transfer of     
   assets
2) No discretion to avoid
3) Obligation has already occurred
Most - Legal Foundation
Other - Duty or Responsibility

Question 11

What are some other concepts related to Assets and Liabilities?

Answer 11

1) Transactions & Events that Change Assets & Liabilities
2) Valuation Accounts
- Contra accounts that change assets and liabilities
3) Effects of Uncertainty
- Recognition
- Measurement

Question 12

What is Equity or Net Assets?

Answer 12

Residual interest in the assets of an entity that remains after deducting its liabilities

Question 13

What is Business Enterprise Equity?

Answer 13

• Increased by Investment

- Decreased by Dividends

Question 14

What are the Essential Characteristics of Equity or Net Assets?

Answer 14

Centers on conditions for transferring entity assets to owners

Ways:
- Distributions (i.e., dividends)
- Liquidation
- Stock buy-back
- Being very successful (allows shareholders to sell in the 
  market)

Other Characteristics

• Different classes
• Different degrees of risks
• Different rights

Question 15

What are expense characteristics?

Answer 15

Actual or expected cash outflows from ongoing major or central operations

Question 16

What are Gains and Losses?

Answer 16

GAINS are increases (LOSSES are decreases) in equity from peripheral or incidental transactions and from all other transactions and other events affecting the entity - exclusive of owner transactions

Question 17

What are characteristics of Gains and Losses?

Answer 17

• Classified according to the source
• Incidental transactions with other entities
• Nonreciprocal transfers
• Classified as operating or non operating

Question 18

What are Expenses?

Answer 18

EXPENSES are the use of assets or incurrence of liabilities from producing goods or rendering services or other activities that constitute the entity’s ongoing major or central operations

Question 19

What is Comprehensive Income?

Answer 19

Change in Equity from Non Owner sources

Does not Include:

1) Investments by, and
2) Distribution to Owners

Question 20

What does Comprehensive Income result from?

Answer 20

• Non-owner exchange transactions
• Its productive efforts, and
• Interaction with its environment

Question 21

What are Revenues?

Answer 21

Inflows or other enhancements from an entity’s ongoing major or central operations

Question 22

What are the characteristics of Revenues?

Answer 22

Actual or expected cash inflows from ongoing major or central operations