Element of Financial Statements

Element of Financial Statements

The financial statement elements can be broadly classified into five types i.e. assets, liabilities, equity expense and revenue. The assets, liabilities and equity relate to balances sheets, where expense and revenue are shown in profit and loss account.

1.    Assets

First element of financial statement is assets. Assets are resources control by the organization and expected to generate economic benefit for the organization in the future. It is important that asset arise due to a past event, and there is no concept of future asset.

2.    Liabilities

Second element of financial statement is Liabilities. These arise from the past event and are present obligation of the organization. In simple word, liability is confirmed amount due at a given date.

3.    Expenses

Third element of financial statement is Expenses. These are the amount spent by the organization of running the business. Expense would reduce the equity. In practical accounting net income is charged to equity instead of charging expense to equity.

4.    Income

Fourth element of financial statement is income. Theses are the inflow of economic benefit (usually in the form of cash). It arises from the normal business activities and will increase the equity of the organization. In more technical term net income (income minus expenses) would increase the equity.