Task 3

Question 1

What is an asset?

Answer 1

Present economic resource controlled by an entity as a result of past events. An economic resource is a right that has potential to produce an economic benefit.

Question 2

What is a liability?

Answer 2

A present obligation of an entity to transfer an economic resource as a result of a past event

Question 3

What is equity?

Answer 3

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

Question 4

What is an expense?

Answer 4

A decrease in the economic benefits during an accounting period

Question 5

What is income?

Answer 5

An increase in the economic benefits during an accounting period

Question 6

What are the five elements of the financial statements according to the framework?

Answer 6

Income
Expense
Asset
Liability
Equity

Question 7

Why are inventories classified as asset?

Answer 7

The purchase or making of inventory is a past event.

The inventory is owned and therefore controlled by an entity.

The inventory has the potential to produce economic benefits because it can be sold for cash