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Elements Of Financial Statement Homework Help

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Elements of Financial Statement

The elements which are directly related to the measurement of financial position are assets, liabilities and equity. The elements which are directly related to the measurement of profit are income and expenses.

Asset: An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.

Liability: A liability is a present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. There is a distinction between a present obligation and future commitment. A decision by the management of an enterprise to acquire assets in future does not of itself give the rise to a present obligation.

Equity: In a corporate enterprise equity is classified in the Balance Sheet as Share Capital and Reserve and Surplus. Normally Equity is shown at its paid up value.

Income and Expenses: Income is increase in economic benefits during the accounting period in the form of inflows or enhancement of assets or decrease of liability that result in increase of equity. Whereas expenses are decreases in economic benefits during the accounting period in the form of outflows or depletion of assets or increases in liabilities that result in decrease in equity other than those relating to distribution to equity participants.

Measurement of elements of financial statements

Measurement is the process of determining the monetary amounts at which the elements of the financial statement are to be recognised and carried in the Balance Sheet and Income Statement. A number of different measurements are employed to define degrees in financial statements. They are as follows:

  • Historical cost
  • Current cost
  • Realistic value
  • Present value.

The commonly adopted basis is historical cost.




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