Elements of the financial statements include Assets, Liabilities, Equity, Income & Expenses. The first three elements relate to the statement of financial position whereas the latter two relate to the income statement.
The first three elements relate to the statement of financial position while the latter two relate to income statements.
Assets
Definition
Asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity (IASB Framework).
Explanation
In simple words, asset is something which a business owns or controls to benefit from its use in some way. It may be something which directly generates revenue for the entity (e.g. a machine, inventory) or it may be something which supports the primary operations of the organization (e.g. office building).
Classification
Assets may be classified into Current and Non-Current. The distinction is made on the basis of time period in which the economic benefits from the asset will flow to the entity.
Current Assets are ones that an entity expects to use within one-year time from the reporting date.
Non Current Assets are those whose benefits are expected to last more than one year from the reporting date.
Types and Examples
Following are the most common types of Assets and their Classification along with the economic benefits derived from those assets.
| Asset | Classification | Economic Benefit |
|---|---|---|
|
Machine |
Non-current |
Used for the production of goods for sale to customer. |
|
Office Building |
Non-current |
Provides space to employees for administering company affairs. |
|
Vehicle |
Non-current |
Used in the transportation of company products and also for commuting. |
|
Inventory |
Current |
Cash is generated from the sale of inventory. |
|
Cash |
Current |
Cash! |
|
Receivables |
Current |
Will eventually result in inflow of cash. |