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Chapter1: Environment and Theoretical Structure of Financial Accounting

Elements of Financial Statements

SFAC 6 defines 10 elements of financial statements. These elements are “the building blocks with which financial statements are constructed—the classes of items that financial statements comprise.”36 They focus directly on items related to measuring performance and to reporting financial position. The accrual accounting model actually is embodied in the element definitions. The FASB recognized that accrual accounting produces information that is more successful in predicting future cash flows than is cash flow accounting.

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   For now, we list and define the elements in Graphic 1-8. You will learn much more about these in subsequent chapters.

 

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The 10 elements of financial statements defined in SFAC 6 describe financial position and periodic performance.

GRAPHIC 1-8
Elements of Financial Statements

 

Elements of Financial Statements


Assets probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Liabilities 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 a result of past transactions or events.

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 a result of past transactions or events.

Equity (or net assets)called shareholders’ equity or stockholders’ equity for a corporation; the residual interest in the assets of an entity that remains after deducting liabilities.

Called shareholders' equity or stockholders' equity for a corporation, it is the residual interest in the assets of an entity that remains after deducting its liabilities.

Investments by owners increases in equity resulting from transfers of resources (usually cash) to a company in exchange for ownership interest.

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests in it.

Distributions to owners decreases in equity resulting from transfers to owners.

Decreases in equity of a particular enterprise resulting from transfers to owners.

Comprehensive income traditional net income plus other nonowner changes in equity.

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Revenues inflows or other enhancements of assets or settlements of liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major, or central, operations.

Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Expenses outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing good, rendering services, or other activities that constitute the entity's ongoing major, or central, operations.

Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Gains increases in equity from peripheral, or incidental, transactions of an entity.

Increases in equity from peripheral or incidental transactions of an entity.

Losses decreases in equity arising from peripheral, or incidental, transactions of the entity.

Represent decreases in equity arising from peripheral or incidental transactions of an entity.




36“Elements of Financial Statements,” Statement of Financial Accounting Concepts No. 6 (Stamford, Conn.: FASB, 1985), par. 5.

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