The definition of running or investing in a company has evolved with time. Every decision is taken after ample research. The standing of any company is calculated based on financial statements. With these statements, one can have a clear view of the company’s revenue and expenses. Also, it is an indication of whether the company was able to meet its short-term and long-term financial obligations. In short, it can be called the financial health of the company. So, this financial statement has many elements like Assets, Liabilities, Equity, Investments by owners, Revenues, Expenses, Gains and losses. Let us go through these elements of Financial statements.
Financial accounting and Taxation accounting is the branch of accounting that is concerned with the summary, analysis, and reporting of financial transactions relating to a business.
The end product of Financial accounting involves the preparation of Financial Statements for the users of accounting information. A financial statement includes the following:
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Statement of Financial Accounting Concepts (SFAC) 6, governed by Generally Accepted Accounting Principles (GAAP), encompasses 10 elements of financial statements which mainly focus on measuring the performance and ascertaining the financial position of the Business Analytics courses It has embodied the accrual system of accounting and Taxation courses in its elements that adhere to the financial statements.
The 10 elements included in the Financial Statements are as Follows:-
Assets
Liabilities
Equity
Investments by owners
Distributions to owners
Revenues
Expenses
Gains
Losses
Comprehensive Income Statement
The following elements of financial statements are discussed below to have a deep insight into their meanings:
1. ASSETS
Assets are the property or legal rights owned by a business to which monetary value can be attached. In other words, it is an item of economic value that is expected to yield a benefit in the future. Assets can be classified into:
i. Tangible Assets: Tangible Assets are those assets that have physical existence i.e. they can be seen and touched. Examples of tangible assets are machinery, furniture, building, etc. ii. Intangible Assets: Intangible assets are those assets that do not have physical existence i.e. they cannot be touched and seen. Examples of intangible assets are goodwill, patents, trademarks, etc. iii. Fixed Assets: Fixed Assets are those assets that are put to use for more than one accounting period and their benefit is derived over a longer period. For example, computers, machinery, land, etc. iv. Current assets: Current assets are the assets that are readily convertible into cash and generally absorbed within one accounting period. For example, debtors exist to convert them into cash, bills receivable, etc.
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2. LIABILITIES
According to IFRS Framework, “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”. In other words, liability is the amount owed by the business to the proprietor and to the outsiders. Liabilities are generally categorized into 2 broad categories i.e. Current Liabilities and Non-Current Liabilities.
i. Current Liabilities It refers to those obligations or payments which are repayable during the current financial year. Examples of current liabilities are Creditors, bills payable. ii. Non-Current Liabilities It comprises of those payments which are due for payment over a long period of time and there is no need to discharge it immediately. For example Debentures, long term loans, etc.
3. EQUITY
Equity represents an ownership interest in a firm in the form of stock. Being precise in accounting terms, is the difference between the value of assets and the cost of liabilities of something owned. It is mainly a residual amount adjusted by the assets against liabilities.
Equity= Assets – Liabilities
4. INVESTMENT BY OWNERS
It depicts an increase in equity resulting from the transfer of resources in exchange for an ownership interest. It basically describes an owner’s contribution to the firm. The issue of ownership shares of stock by a company in exchange for cash represents an investment by owners.
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5. DISTRIBUTION TO OWNERS
It represents a decrease in equity which results from transfer to owners. It determines the owners’ withdrawal from the ownership interest of the firm. A cash dividend paid by a corporation to its shareholders is an example of distribution to owners.
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Revenue is the income that a business earns from its normal business activities. It is an inflow of assets, which results in an increase in owner’s equity. The exchange of goods and services for money consideration is an example of revenue.
7. GAINS
Gain is an increase in owner’s equity from peripheral transactions which are irregular and non-recurrent in nature. For example, the Sale of machinery for an amount greater than its book value (original cost less depreciation) would result in a gain for an enterprise that is engaged in the business other than that of sale and purchase of machinery.
8. EXPENSES
Expenses are the gross outflows incurred by the business enterprise for generating revenues. An expense is charged to the Profit and Loss Account.
9. LOSSES
Loss is a decrease in owner’s equity from peripherals transactions which are irregular and non-recurrent in nature. For example, the Sale of machinery for an amount lesser than its book value (original cost less depreciation) would result in a gain for an enterprise that is engaged in the business other than that of sale and purchase of machinery.
10. COMPREHENSIVE INCOME
Comprehensive income is the change in equity of a business enterprise from transactions from non-owner sources. It includes all changes in equity of an enterprise other than those resulting from investments by owners and distributions to owners.
Purposes of the elements of financial statements:
The elements of financial statements serve specific purposes that benefit in financial accounting. Understanding a company’s profit-loss graph, statistical analysis, and economic status is very important to increase the gross output of the business.
Balance sheet: A balance sheet is an essential element of a financial statement and serves the purpose of revealing and accounting for an organization’s financial position at a given time. The statement provides an account of total ownership of the organization and the liabilities of the same. The balance sheet also clarifies the investments made, thereby making the process more straightforward and more systematic.
Income statement: Financial statements comprise an income statement that reveals the profit and loss of the organization at a given time. This information becomes exceedingly valuable when various data are grouped to view revenues and expenses.
Statement of Equity: It is an essential element of financial statements as it shows the net income of the company.
Benefits of writing financial statements
Monitoring the financial status of an organization is very important to ensure good results and output. The elements of financial statements make it easier and more organized and provide a clear insight into the financial position of the business.
Writing proper financial statements prevent wasteful expenditures and, thus, guarantee preservation and savings. This helps individuals to deploy funds into valuable and profitable investments.
The elements of financial statements like loss, liabilities, and gains make the statements a decision-making tool. These elements of financial statements make them an excellent decision-making tool.
A statement that reveals a company’s profits and liabilities helps them to plan strategy and make the outputs better and more productive.
Elements of financial statements also help in getting credits for the business. Financial statements are required for calculating federal tax dues. Thus, they are beneficial when it comes to filling out reports for tax obligations. Financial statements, therefore, help in making an enterprise better and organized.
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Ans. Financial statements are formal written records of financial transactions that convey the business activities and the financial performance of a company. Important financial data of the company is presented in a structured manner in a financial statement to make it easy to understand.
Q 2. What are the four main financial statements?
Ans. The four main financial statements are balance sheets, income statements, cash flow statements and statements of shareholders’ equity.
Q 3. What are the elements of a financial statement?
Ans. The elements of a financial statement are Assets, Liabilities, Equity, Investments by owners, Distributions to owners, Revenues, Expenses, Gains, Losses and Comprehensive Income Statements.
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36 Comments
The “Elements of Financial Statements” module was a mixed bag for me. It simplified basic terms like assets and liabilities, which was helpful. Yet, the absence of interactive elements made it a bit monotonous. Additionally, diving deeper into the nuances of financial components could have added depth to the learning. In summary, a decent introduction but could be more engaging.
The course “Elements of Financial Statements” covered fundamental concepts like assets, liabilities, and retained earnings. However, the brevity of the course left some topics feeling rushed. More in-depth explanations would be beneficial. Overall, a decent starting point for grasping financial statement basics.
In-depth, easy-to-understand explanations of the components of financial statements have been supplied by this website, which I currently work in the financial sector. After creating a link with the aid of this blog, I shared it with my friends who are under pressure in this industry. great blog
This article does a great job breaking down the 10 elements of financial statements into easy to understand terms. I especially appreciate the explanation of liabilities and equity. Very informative!
The elements of financial statements are the basic building blocks of financial reporting. There are 10 key components that make up a financial statement, including assets, liabilities, equity, revenues, and expenses.
I currently work in the financial sector, and this website has provided thorough, simple-to-understand explanations of the elements of financial statements. then I create link with the help of this blog then shared with my my friends who are pressuring in this field.
Elements Of Financial Statements these financial statement components have definite functions that are advantageous to financial accounting. It’s an excellent piece that was well-written. Some of them will be used in my teaching. And many thanks.
The Elements of financial statements, I adore this financial statement blog since it offers several, tested techniques for management to use in supporting the business strategy. This course, in my opinion, is very pertinent for anyone who teaches online and wants to improve their online teaching abilities, increase student engagement, and comprehend the worth of various online tools and websites. I appreciate to HENRY HARVIN it doing very well.
The course is very well structured and easy to understand the basic concepts. The prof has done a great job explaining the concepts. this is really helpful for me because I have so many doubts in accounts. And after I join the institute my all inquiry are solved about this. These blogs are very helpful for new learners.
The Course was very useful for rethinking with other drafters from around the world, sharing experiences and challenges faced and some basic elements of financial statements also. Am glad HENRY HARVIN post this blog.
This is the best way for a beginner to learn about the entire basics of Bat course Certificaiton . The way the topic of elements of financial statements are laid out in an organized way makes it easier for me to learn about it quicker. All of the topics are easily understandable.
BAT Course technology was introduced to me in less than an hour. Some of the visuals in BAT Course Training, are similar to Excel’s tables. I’m pleased I got to see how BAT Course increases Excel’s pivot table capability, such as the filled shapes and cards. Overall, Thank you for sharing great articles. I don’t know how to start in a career with accounts. but after reading this course wonderful knowledge about financial statements.
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I love this blog of financial statement as it provides different, proven methods for management to support the Business model.
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Hi I am Harish , Thank you for sharing the great information for related information with this financial statements . Best blog for learning this financial elements . I like their way of explanation.
I presently work in the taxation industry, and this site has provided extensive explanations of the financial statement’s components that even a novice can easily grasp. I sent my pals who work in this industry a link to this blog.
These 10 elements of financial statements serve specific purposes that benefit in financial accounting. It’s a wonderful article, written in a consolidated way.
This is the best way for a beginner to learn about the entire basics of Business Accounting and taxation. The way the topic of elements of financial statements are laid out in an organized way makes it easier for me to learn about it quicker. All of the topics are easily understandable.
These 10 elements of financial statements serve specific purposes that benefit in financial accounting. It’s a wonderful article, written in a consolidated way.
a very good course and can improve skills in analyzing financial statements, starting from the journaling cycle to financial statement analysis, this course is very helpful to improve skills and abilities in the world of accounting
Thank you for sharing this great certification of Elements Of Financial Statements In 2022 and helpful to earn high-quality Skills related to taxation. I Really appreciate for your contribution to arrange good content and best instructor in your center.
Thank you for sharing great articles. I don’t know how to start in a career with accounts. but after reading this course wonderful knowledge about financial statements.
Hi, I read this blog it is very nice. I am getting more knowledge of the benefits of financial accounting. It’s a wonderful article. thanks for sharing
It’s going to be ending of mine day, except before ending I am reading this wonderful blog to increase my knowledge about Elements Of Financial Statements.
I am currently working in the taxation sector and this blog has explained the elements of the Financial statements in a detailed manner which any fresher can understand well. I have forwarded this blog to my friends who are in this sector
10 Elements Of Financial Statements In this blog mainly focus on measuring the performance of the Business Analytics courses. This blog is really helpful.
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