6
The elements of the financial statements
In order to appropriately report the financial performance and position of a
business the financial statements must summarise five key elements:
1
Asset – A present economic resource controlled by the entity as a
result of past events
(para 4.3).
For example, a building that is owned and controlled by a business and
that is being used to house its operations and generate revenues would be
classed as an asset.
2
Liability – A present obligation of the entity to transfer an economic
resource as a result of past events
(para 4.26).
For example, an unpaid tax obligation or a bank loan is a liability
3
Equity
– This is the 'residual interest' in the assets of the entity after
deducting all liabilities. It is effectively what is paid back to the owners
(shareholders) when the business ceases to trade.
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