Assets are resources which we own and Liabilities are obligations which we owe to others.
ELEMENTS OF FINANCIAL STATEMENTS
Asset:-
An asset is a resource controlled by the enterprise as a result of past events, from which future economic benefits are expected to follow to the enterprise.
An asset has the following three features
a) It has potential to provide, future economic benefits to the enterprise.
b) It is a result of past transactions or events.
c) The enterprises has the control over it.
This definition gives stress on the "Right to Control" the assets rather than the Legal Ownership.
Example: a plant purchased on Hire Purchase agreement can give right to control or a machinery taken on Finance Lease can also give right to control an asset although the legal ownership is not transferred in each case.
LIABILITY:- A liability is a present obligation of the enterprises the settlement of which is expected to result in an outflow of its resources.
The obligation arises as a result of past transactions or events which have already occurred. It involves a future transfer of cash, goods or services or the forgoing of a future cash receipts.
The obligation may arise from a Normal Business Practice, Custom, Policy or a Desire to maintain the good business relations.
Example:- A mobile phone company, as a matter ofpolicy and a desire to maintain good businessrelations, replaces faulty batteries of mobile phone already sold whether covered by warranty or not, the amount that is expected to be expensed on the replacement of batteries is a liability.
EQUITY:- Equity is a Residual Interest in the assets of the enterprise after deducting all of its liabilities. In case of a company, Equity represents the amount of Share Capital plus All Net Reserves. It is also known as Share Holders Funds.
INCOME:- Income is an increase in Economic Benefits during the accounting period in the form of:-
ü In flows or enhancement of assets or
ü Decrease in liabilities.
So that it resultsin increase in the equity of the enterprise.
EXPENSES:- Expenses are decrease in Economic Benefits during the accounting period in the form of
ü Outflows or Depletion of assets or
ü Incurrence of liability
So that it results in decrease in the equity of the enterprise.
ELEMENTS OF FINANCIAL STATEMENTS
Asset:-
An asset is a resource controlled by the enterprise as a result of past events, from which future economic benefits are expected to follow to the enterprise.
An asset has the following three features
a) It has potential to provide, future economic benefits to the enterprise.
b) It is a result of past transactions or events.
c) The enterprises has the control over it.
This definition gives stress on the "Right to Control" the assets rather than the Legal Ownership.
Example: a plant purchased on Hire Purchase agreement can give right to control or a machinery taken on Finance Lease can also give right to control an asset although the legal ownership is not transferred in each case.
LIABILITY:- A liability is a present obligation of the enterprises the settlement of which is expected to result in an outflow of its resources.
The obligation arises as a result of past transactions or events which have already occurred. It involves a future transfer of cash, goods or services or the forgoing of a future cash receipts.
The obligation may arise from a Normal Business Practice, Custom, Policy or a Desire to maintain the good business relations.
Example:- A mobile phone company, as a matter ofpolicy and a desire to maintain good businessrelations, replaces faulty batteries of mobile phone already sold whether covered by warranty or not, the amount that is expected to be expensed on the replacement of batteries is a liability.
EQUITY:- Equity is a Residual Interest in the assets of the enterprise after deducting all of its liabilities. In case of a company, Equity represents the amount of Share Capital plus All Net Reserves. It is also known as Share Holders Funds.
INCOME:- Income is an increase in Economic Benefits during the accounting period in the form of:-
ü In flows or enhancement of assets or
ü Decrease in liabilities.
So that it resultsin increase in the equity of the enterprise.
EXPENSES:- Expenses are decrease in Economic Benefits during the accounting period in the form of
ü Outflows or Depletion of assets or
ü Incurrence of liability
So that it results in decrease in the equity of the enterprise.