10 Elements of

Financial Statements

www.henryharvin.com
 10 Elements of Financial Statements

Financial 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:

1. An Income statement or Profit and Loss Statement is a Financial Statement showing the Company’s revenue
and expenses for a particular period.
2. A Balance Sheet is a statement of financial position indicating a company’s assets, liabilities, and owner’s
equity at a given point in time.
3. A statement of changes in EQUITY shows the changes in equity of the company during the stated period.
4. A cash flow statement is a summary of cash receipts and cash payments from the operating, financing, and
investing activities of a company.  

10 Elements of Financial Statements

 10 Elements of Financial Statements

Looking for Professional Training on Financial Statements? Join our next

Masterclass on Financial Statements!For more details, contact us at:
Email: sahil@henryharvin.com
Helpline No.:+91 9015266266
Whatsapp: http://bit.ly/2BLvdAF

Elements of Financial Statements

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 enterprise. It has
embodied the accrual system of accounting in its elements that adhere to the financial statements.

The 10 elements included in the financial statements are as follows:-

1. Assets
2. Liabilities
3. Equity
4. Investments by owners
5. Distributions to owners
6. Revenues
7. Expenses
8. Gains
9. Losses
10. Comprehensive Income Statement

10 Elements of Financial Statements

 10 Elements of Financial Statements

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 money 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 its 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.

10 Elements of Financial Statements

 10 Elements of Financial Statements

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.

10 Elements of Financial Statements

 10 Elements of Financial Statements

3. EQUITY
Equity represents an ownership interest in a firm in the form of stock. Being precise in the accounting
terms,  it 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.

10 Elements of Financial Statements

 10 Elements of Financial Statements

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.

6. REVENUE

Revenue is the income that a  business earns from its normal business activities.  It is an inflow of
assets, which result in an increase in owner’s equity.
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.

10 Elements of Financial Statements

 10 Elements of Financial Statements

8. EXPENSES

Expenses are the  gross outflows  incurred by the business enterprise for generating revenues. An
expense is charged to 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, 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.

10 Elements of Financial Statements

 10 Elements of Financial Statements

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 financial statement and

serves the purpose of revealing and accounting 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.

10 Elements of Financial Statements

 10 Elements of Financial Statements

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. 

Course Curriculum
Summary of 200+ Topics 
Supply or Levy
Place of Supply
Value of Supply
Export & Import
E-Way Bills
Registrations
Input Tax Credit & ITC04
Transitional Provisions
Job Work
Account & Records
Invoice, Tax Payments
Time of Supply
Returns
Refunds
Audit & Assessment
Offenses and Penalties
Demand & Recovery

10 Elements of Financial Statements

 10 Elements of Financial Statements

Special Topics
Practical Knowledge Related to GST along with FAQ’s & Case Studies
Filing of Returns
Session with Tally
Practical Session using Software
To Know More About Out Certified GST Practitioner Course Click Here

What are the basic financial statements?

The basic financial statements of an enterprise include the

1) balance sheet (or statement of financial position),
2) income statement,
3) cash flow statement, and
4)  statement  of changes in owners’ equity or stockholders’ equity. The balance sheet provides a
snapshot of an entity as of a particular date.

What is financial statement example?

The primary financial reports are: the profit and loss statement, balance sheet and statement of cash
flow. … Using this information, you can figure out how to prepare several  examples  of  financial
statements: Sales: $3,200,000. Cost of goods sold: $1,920,000.

For more information on this topic, Contact us :

Email: hello@henryharvin.com  
Call: 9015266255  
WhatsApp: +91 9891533953

10 Elements of Financial Statements