The following are the standard elements of financial statements of business enterprises. assets, liabilities, equity, revenues, expenses, gains, losses, investment by owners, distribution to owners and comprehensive income.
According to FASB, these elements are the building blocks with which financial statements are constructed.
FASB defines the above listed in ‘Elements of Financial Statements of Business Enterprises’ as follows:
Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
Comprehensive income is the change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Distributions to owners
Distributions to owners are decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities to owners. Distributions to owners decrease ownership interest or equity in an enterprise.
Equity is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business entity, equity is the ownership interest.
Expenses are outflows or other uses of assets or incurring of liabilities during a period from delivering or producing goods or rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operation.
Gains are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by the owner.
Investments by owners are increases in net assets of a particular enterprise resulting from transfers to it from other entities of value to obtain or increase ownership interest (or equity) in it.
Liabilities are 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.
Losses are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners.
Revenues are inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.
A financial statement should include all the expenditure involved in a company. It should talk about all the money which is in the company, which will go out of the company and the property the company owns. A financial statement analysis must explain and include various terms like – assets, liabilities, equity, expenses, investment, gains, losses, revenues, etc. Every little penny that is involved in your business needs to be included in your financial statements. So do not mess with your financial statements, update them to avoid confusions and loss.