LESSON 2

ELEMENTS OF FINANCIAL STATEMENTS

Student Learning Outcomes:

At the end of the lesson, the students will be able to:

 define the elements of financial statements

 give sample accounts for each element

ELEMENTS OF FINANCIAL STATEMENTS

DEFINITION, CLASSIFICATION & SAMPLE ACCOUNTS

1. Asset – a resource controlled by a particular entity as a result of past

transaction or event and from which future economic benefits are
expected to flow to the enterprise.

Assets can be classified as current and non-current.

Date Developed: Document No.

FAR 111
Developed by: Issued by:
Pag Basic Accounting
e
Demelyn Marie Segovia, SPAMAST
MBA
 Current assets are those that qualify any of the following characteristics:
 held primarily for the purpose of trading
 expected to be realized or to be sold/consumed within its normal
operating cycle;
 expected to be realized within 12 months after the reporting period
 cash and cash equivalents unless the asset is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting period

Non-current assets are those other assets not classified as current.

Sample Accounts:

CURRENT ASSETS
 Cash and Cash Equivalents
 Notes Receivable
 Accounts Receivable
 Inventories
 Prepaid Expenses

NON-CURRENT ASSETS
 Property, Plant and Equipment
 Accumulated Depreciation
 Intangible Assets
 2. Liabilities - are probable future sacrifices of economic benefits arising
from present obligations of a particular entity to transfer assets or
provide services to other entities in the future as result of past
transactions or events.

Liabilities can be classified as current and non-current.

Current liabilities are those that qualify any of the following

characteristics:
 held primarily for the purpose of trading
 expected to be settled within its normal operating cycle
 due to be settled within 12 months after the reporting period
 the entity does not have an unconditional right to defer settlement
of the liability for atleast 12 months after the reporting period

Non-current assets are those other assets not classified as current.

Sample Accounts:

CURRENT LIABILITIES  Income Tax Payable

 Accounts Payable NON-CURRENT LIABILITIES
 Notes Payable  Mortgage Payable
 Loans Payable  Bonds Payable
 Accrued Expenses  Long-term Loans Payable
 Unearned Revenues
 Current Portion of long-term Debt

3. Equity - or net assets, called shareholders’ equity or stockholders’ equity

for a corporation. It is the residual interest in the assets of an entity that
remains after deducting liabilities.

Sample Accounts:
 Capital account  Income Summary
 Withdrawals / Drawings  Retained Earnings
4. Income – increases in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of liabilities
that result in increases in equity, other than those relating to
contributions from equity participants.

Sample Accounts:
 Service Revenue  Dividend Income
 Sales  Rent Revenue
 Interest Income  Other Income

5. Expenses – decreases in economic benefits during the accounting period

in the form of outflows or depletion of assets or incurrences of liabilities
that result in decreases in equity, other than those relating to
distributions to equity participants.

Sample Accounts:
 Cost of Sales
 Salaries and Wages  Insurance Expense
 Utilities Expense  Transportation Expense
 Rent Expense  Depreciation Expense
 Supplies Expense  Bad Debts Expense
 Interest Expense