Accounting elements

Although the content, presentation, and basis of accounting may vary according to the reporting requirements of Statement, the basic elements of the financial statements remain the same. Accounting elements are the primary classifications of financial information. Together, they provide the comprehensive classification structure that double-entry accounting needs as a self-balancing system. The elements of accounting (i.e., assets, liabilities, net assets, revenues and expenses) are discussed below:

Asset

Assets are defined as a probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. The following typically represent the major asset categories:

  • Cash and Investments

  • Receivables

  • Prepaid Items

  • Inventory

  • Capital Assets

Liability

Liabilities represent financial obligations of an entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Owner’s equity

Net assets or equity is the residual interest in the assets of the entity after deducting all its liabilities.

Revenue

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets or equity, other than increases relating to contributions from owners.

Expense

Expenses are decreases in economic benefits or service potential during the reporting period in the form of outflows or consumption of assets or incurrence of liabilities that result in decreases in net assets or equity, other than those relating to distributions to owners.

Within the accounting framework the accounting elements are recognized and valued by transactions in the accounting system, and their recordation and reporting exhibit the qualitative characteristics required by the accounting framework.