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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 26
ELEMENTS OF FINANCIAL STATEMENTS
Financial information of an entity are classified into five main heads, these main heads
are elements of financial statements.
Elements of financial statements
Measurement of financial
Measurement of financial
position through balance sheet
performance through income statement
Assets
Liabilities
Incomes
Equity
Expenses
Assets:
These are the resources in control of the entity as a result of past events and from
which future economic benefits are expected to flow to the entity.
Points to remember:
1. Resources in control
2. Past event
3. Future inflow
Liabilities:
These are the present obligations of the entity arising from past events, the settlement
of which is expected to result in an outflow from the entity of resources embodying
economic benefits.
Points to remember:
1. Present obligation
2. Past event
3. Future outflow
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Advance Financial Accounting (FIN-611)
VU
Equity:
Equity represents residual interest in the assets of the entity after deducting all its
liabilities.
Points to remember:
1. Equity contributed
2. Reserves created
Incomes:
Incomes establish 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.
Incomes include:
1. Revenue
a. Sales of goods
b. Sales of services
c. Returns on investments
2. Gains
a. Disposal of assets at a value higher than its carrying amount
b. Discharge of liabilities at a value lesser than its carrying amount
Expenses:
Expenses establish decreases in economic benefits during the accounting period in the
form of outflows or decrease in assets or incurrence of liabilities that result in
decreases in equity, other than those relating to distributions to equity participants.
Expenses include:
1. Revenue Expenses
a. Expenses that arise in the course of ordinary activities of an entity.
2. Losses
a. Disposal of assets at a value lesser than its carrying amount
b. Discharge of liabilities at a value higher than its carrying amount
Measurement of the Elements of Financial Statements
A number of different measurement bases are employed to different degrees and combinations
in financial statements. These include:
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Advance Financial Accounting (FIN-611)
VU
1. Historical Cost
Assets are recorded at the amount of cash paid to acquire them. Sometimes the terms
cash equivalents or fair value at acquisition will be used instead.
Liabilities are recorded at the proceeds received in exchange for the obligation on the
date of transaction.
2. Current Cost
Assets are carried at their current purchase price.
Liabilities are carried at the undiscounted amount currently required to settle them.
3. Realizable Value
Assets are carried at the amount, which could currently be obtained by an orderly
disposal.
Liabilities are carried at their settlement values, the amount to be paid to satisfy them
in the normal course of business.
4. Present Value
Assets are carried at the present discounted value of the future net cash inflows that
the item is expected to generate in the normal course of business.
The most common measurement basis adopted by the entity in preparing financial
statements is historical cost. This is usually combined with other bases.
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Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet