Elements-Definitions

Question 1

What is the definition of an asset?

Answer 1

Something which is PRESENTLY controlled by the entity, FUTURE ECONOMIC BENEFIT will flow to the entity and is the result of a PAST event.

Remember: P,P,F,

Question 2

What is the definition of a liability?

Answer 2

Something which is a PRESENT obligation of the entity, FUTURE ECONOMIC BENEFIT will flow from the entity and is the result of a PAST event.

Remember: P,P,F,

Question 3

What is the definition of equity?

Answer 3

This represents the owners financial interest in the business. Calculated by Assets – Liabilities.

Remember EQ=A-L

Question 4

What is the definition of expenses?

Answer 4

Any outflow which decreases equity through either
decreasing assets or increasing liabilities other than drawings by owner.

Remember D,D,D,D,ND

Question 5

What is the definition of income?

Answer 5

Any INFLOW which INCREASES EQUITY through either INCREASING ASSETS or decreasing liabilities other than contribution by owner.

Remember I,I,I,I,NC,