Elements of a Financial Statement:

Basic Accounting Equation:

Assets = Liabilities + Owner’s Equity

I. Balance Sheet - It is also called as the statement of financial position.

a) Assets - These are the resources owned and controlled by a company.
b) Liabilities - These are the financial obligations or the resources owed by the company.
c) Owner’s Equity - Capital of a business.

Note: Asset, liability, and owner’s equity are called real accounts because the ending balances of the
previous accounting period are carried on to the next period.

II. Income Statement - It shows the company’s income and expenditures.

a) Revenues - These are the amounts earned from selling products or rendering services.
b) Expenses - These are the costs of providing products and services.
Note: Revenue and expense are nominal accounts because the balance from the previous period can not be
carried on to the next period.

Basic Financial Statements:

1. Statement of Financial Position - The balance sheet

Name of the company

Title of the The
financial statement Time period covered

From changes in equity

2. Statement of Comprehensive Income - The income statement

Name of the company

Title of the The
financial statement Time period covered
 3. Statement of Changes in Equity - It comprises of capital plus profit minus withdrawals.

Name of the company

Title of the The
financial statement Time period covered

From the 1st or previous period

From income statement

4. Statement of Cash Flows - It can be prepared using direct method (Operating, Investing, and Financing
activities) and indirect method.

Title of the Name of the company

financial statement The
Time period covered

Sale & Purchase of long-term

assets

Borrowing and sourcing of

funds

5. Notes to Financial Statements - The details of a computation that is needed to be explained.

Links among Elements of Financial Statement

Statement of Financial Position (Beginning)
A = L + OE
+
Statement of Financial Performance
Income - Expense
+ Changes in Equity

Contributions from holders of equity claim - Distribution to

holders of equity claims
-
Statement of Financial Position (Ending)
A = L + OE