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The elements of financial statements

The elements of financial statements are the classes of items contained in the financial statements. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements.

There are two main groups of elements:

Within these main categories there are sub-classifications. For example, assets and liabilities may be classified by their nature or function in the business of the entity in order to display information in the manner most useful to users for purposes of making economic decisions.

Other events comprise:

  • contributions from owners and distributions to owners (shareholders) are not the same as, and need to be distinguished from, other increases or decreases in equity (in other words, net income (loss) as the balance of income and expenses), which is why they are elements even though they are not identified with any particular primary financial statement.
  • Proceeds from long-term financing by lenders and repayments of long-term financing to lenders are also not the same as and need to be distinguished from interest expenditure, foreign exchange differences and other increases and decreases in long-term financing, which is also why they are elements even though they are not identified with any particular primary financial statement.
Objective of General Purpose Financial Reporting Elements of Financial Statements Description or definition
Economic resource Asset A present economic resource controlled by the entity as a result of past events.

An economic resource is a right that has the potential to produce economic benefits.

Claims against the entity Liability A present obligation of the entity to transfer an economic resource as a result of past events.
Equity The residual interest in the assets of the entity after deducting all its liabilities.
Changes in economic resources and claims, reflecting financial performance Income Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
Expenses Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
Other changes in economic resources and claims

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Contributions from holders of equity claims, and distributions to them.

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Exchanges of assets or liabilities that do not result in increases or decreases in equity.

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