Elements of the Financial Statements

Question 1

What are the 10 interrelated elements that are directly related to measuring the performance and status of an enterprise?

Answer 1

1. Assets
2. Liabilities
3. Equity
4. Investments by owners
5. Distributions to owners
6. Comprehensive Income
7. Revenues
8. Expenses
9. Gains
10. Losses

Question 2

Probable future economic benefits obtained or controlled by a particular enterprise as a result of past transactions or events

Answer 2

Assets

Question 3

probable future sacrifices of economic benefits arising from present obligations of a particular enterprise to transfer assets or provide services to other enterprises as a result of past transactions or events

Answer 3

Liabilities

Question 4

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

Answer 4

Equity (or net assets)

Question 5

Increases in net assets or a particular enterprise resulting from transfers to it from other enterprises of something of value to obtain or increase ownership interests (or equity) in it.

Answer 5

Investments by owners

Question 6

Decreases in net assets of a particular enterprise resulting from transferring assets or rendering services to the owner, or incurring liabilities by the enterprise on behalf of owners

Answer 6

Distributions to owners

Question 7

Change in equity of an enterprise, during a period, from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distribution to owners

Answer 7

Comprehensive income

Question 8

inflows or other enhancements of the assets of an enterprise or settlements of its liabilities (or a combination of both), during a period, from delivering or producing goods, rendering services or other activities that constitute the enterprise’s ongoing major or central operations

Answer 8

Revenues

Question 9

Outflows or other uses of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services or carrying out other activities that constitute the enterprise’s ongoing major or central operations

Answer 9

Expenses

Question 10

Increases in equity from peripheral or incidental transactions of an enterprise and from all other transactions and other events and circumstances affecting the enterprise during a period, except those that result from revenues or investments by owners

Answer 10

Gains

Question 11

Decreases in equity from peripheral or incidental transactions of an enterprise and from all other transactions and other events and circumstances affecting the enterprise during a period, except those that result from expenses or distributions by owners

Answer 11

Losses

Question 12

What is required for a liability to be recognized?

Answer 12

It must arise from the occurrence of some critical event in the past from which a benefit (which may be negative as in the case of injuries suffered by a customer) has been received. Sometimes a second critical event may be necessary for a liability to be recognized. ex: warranties - 1st event, money received in excess of sale, 2nd event, product is proven to be defective