Course Content
Nature and Purpose of Accounting The objective of Financial Accounting The Elements of Financial Statements The Accounting Equation The Users of Accounting Information
The Source documents such as receipts and invoices The Books of Prime entry/Original Entry from the journals, cashbooks, Petty cash books and registers The Ledger and the concept of double entry The Trial Balance The Financial Statements
The legal sources of regulation The professional sources of regulation (local and international bodies) and ethical requirements Accounting Standards Common accounting principles/concepts Qualities of useful financial information
CPA 001: Financial Accounting
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The following are the main elements of financial statements:-

  • Assets: These are objects of economic value that are projected to pay off in the future. Accounts receivable, inventories, and fixed assets are examples. Assets are a company’s property or legal rights to which a monetary value can be assigned and are projected to provide a future reward. Assets can be divided into the following categories:-
  1. Tangible Assets: Tangible Assets are tangible assets that can be seen and touched. Machinery, furniture, and buildings are examples of physical assets. 
  2. Intangible Assets: Intangible assets are those that have no physical existence; that is, they cannot be touched or seen. Goodwill, patents, trademarks, and other intangible assets are examples. 
  3. Fixed Assets: Fixed assets are used for more than one accounting period and benefit over a more extended time. Computers, machinery, land, and other similar items are examples. 
  4. Current assets: Current assets can be converted into cash quickly and are often consumed within a single accounting period. Examples include debtors, stock, cash, bills receivable, and so on. 
  • Liabilities: These are legally enforceable commitments owed to another entity or person. Accounts due, taxes paid, and wages payable are just a few examples. “A liability is a present obligation of the enterprise deriving from past events, the settlement of which is projected to result in an outflow of resources embodying economic advantages from the enterprise.” In other terms, liability refers to the amount due by the company to the owner and third parties. There are two basic categories in which liabilities are classified:-
  1. Current Liabilities: It refers to debts or payments that must be repaid during the current fiscal year. Creditors and bills payable are examples of current liabilities.
  2. Non-Current Liabilities: It includes payments that are due over a long period and do not need to be paid immediately—for instance, debentures, long-term loans, and so on.
  • Equity: This is the sum of a company’s owners’ initial investment plus any remaining earnings. The term “equity” refers to a stock-based ownership interest in a company. It is mostly a residual sum that assets and liabilities have modified. Assets – Liabilities = Equity
  • Revenue: Income is the revenue a business earns from selling its goods and services or the money an individual receives in compensation for his or her labor, services, or investments. It is a measurement of a company’s gross activity. Goods and service sales are two examples. The average sales price multiplied by the number of units sold equals revenue/income; revenue is also known as sales on the income statement. 
  • Expenses: are costs incurred in the ordinary course of business. Business expenses are deductible and are always netted against business income.
  • Gains
  • A gain is a rise in the value of an asset or property in general.
  • If the current price of something is higher than the original purchase price, there is a profit.
  • Profits can be categorized in numerous ways for accounting and tax purposes, such as gross vs. net gains or realized vs. unrealized (paper) gains.
  • The nature of capital gains can also be characterized as short-term vs. long-term.
  • Losses
    • A loss is defined as an excess of expenses over revenues, either for a single business transaction or for the total of all transactions for an accounting period.
    • Investors and creditors pay particular attention to the presence of a loss for an accounting period because it can indicate a fall in a company’s creditworthiness.
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