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Accounting Study Guide |
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| CPAClass.com | GAAP | Study |
Components of Financial Statements
Assets, Liabilities, Owner's
Equity, Revenues, Expenses, Gains, Losses
| Financial Statements Overview |
| Accounting Equation |
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Assets = Liabilities +
Equity Equity = Assets - Liabilities ---> Assets = Liabilities + Equity [Example] Company A has $800,000 liabilities and $1,200,000 equity. How much assets does the Company A have?  Assets = Liabilities + Equity = $800,000 - $1,200,000 =
$2,000,000 Assets = Liabilities + Equity Liabilities = Assets - Equity Equity = Assets - LiabilitiesFrom any balance sheet, --> it can be verified that --> Total Assets = Total Liabilities + Total Stockholders' Equity. |
| Assets |
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Assets are --> probable future economic benefits --> obtained or controlled by an entity --> as a result of past transactions or events. [SFAC No. 6., Para. 25] Essential characteristics of assets Probable future economics benefits Obtained or controlled by an entity Result of past transactions or events.Common characteristic of all assets --> is service potential or future economic benefits [SFAC No. 6., Para. 28] |
| Liabilities |
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Liabilities are --> probable future sacrifices of economic benefits --> arising from present obligations of an entity --> to transfer assets or provide services to other entities in the future --> as a result of past transactions or events. [SFAC No. 6., Para. 35] Essential characteristics of liabilities Probable future sacrifices of economic benefits Present obligations to transfer assets or provide services in
the future Result of past transactions or events. |
| Equity |
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Equity
(or net assets) is --> residual interests in the assets of an entity --> that remains after deducting its liabilities. [SFAC No. 6., Para. 49] Essential characteristics of equity Equity is residual
interests in the assets after deducting liabilities Equity = Assets - Liabilities[Example] Company A has $2,000,000 assets and $800,000 liabilities. How much equity does the Company A have? Equity = Assets - Liabilities = $2,000,000 - $800,000 = $1,200,000 |
| Revenues |
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Revenues are --> inflows of assets of an entity or --> settlements of its liabilities (or a combination of both) --> from delivering or producing goods, rendering services. [SFAC No. 6., Para. 78] Essential characteristics of revenues Inflows of assets or settlements of liabilities From delivering goods or rendering services |
| Expenses |
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Expenses are --> outflows or other using up of assets or --> incurrences of liabilities (or a combination of both) | --> from delivering or producing goods, rendering services. [SFAC No. 6., Para. 80] Essential characteristics of expenses Outflows of assets or incurrences of liabilities from delivering goods or rendering services |
| Gains |
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Gains are --> increases in equity (net assets) --> except those from revenues or investments by owners. [SFAC No. 6., Para. 82] Essential characteristics of gains Increases in equity from transactions or events Except those that result from revenues or investments by
owners. |
| Losses |
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Losses are --> decreases in equity (net assets) --> except those from expenses or distributions to owners. [SFAC No. 6., Para. 83] Essential characteristics of losses Decreases in equity from transactions or events Except those that result from expenses or distributions to
owners. |
| Net Income and Owner's Equity |
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Assets = Liabilities + Equity Assets = Liabilities + Equity + Revenues - Expenses Assets = Liabilities + Equity + Revenues - Expenses + Gains - Losses Ending Assets = Ending Liabilities + Ending Owner's Equity Ending Owner's Equity = Beginning Owner's Equity + Investment by Owner + Net Income Net Income = Revenues - Expenses + Gains - Losses Ending Owner's Equity = Beginning Owner's Equity + Investment by Owner + Revenues - Expenses + Gains - Losses Ending Assets = Ending Liabilities + Ending Owner's Equity = Ending Liabilities + Beginning Owner's Equity + Investment by Owner + Net Income = Ending Liabilities + Beginning Owner's Equity + Investment by Owner + Revenues - Expenses + Gains - Losses If Investment by Owner = 0, Gains = 0, Losses = 0, then Ending Assets = Ending Liabilities + Beginning Owner's Equity + Revenues - Expenses Ending Assets = Ending Liabilities + Ending Owner's Equity Assets = Liabilities + Owner's Equity |
| Assets are reported on the
balance sheet. Asset accounts have normal balances on the debit
side. Increase in assets is reported on the debit
side of a journal entry. Decrease in assets is reported on the credit
side of a journal entry. |
| Liabilities are reported on
the balance sheet. Liability accounts have normal balances on the credit
side. Increase in liabilities is reported on the credit
side of a journal entry. Decrease in liabilities is reported on the debit
side of a journal entry. |
| Owner's Equity is reported
on the balance sheet. Owner's equity accounts have normal balances on the credit
side. Increase in owner's equity is reported on the credit
side of a journal entry. Decrease in owner's equity is reported on the debit
side of a journal entry. |
| Revenues are reported on
the income statement. Revenue accounts have normal balances on the credit
side. Increase in revenues is reported on the credit
side of a journal entry. Decrease in revenues is reported on the debit
side of a journal entry. |
| Expenses are reported on
the income statement. Expense accounts have normal balances on the debit
side. Increase in expenses is reported on the debit
side of a journal entry. Decrease in expenses is reported on the credit
side of a journal entry. |
| Gains are reported on the income
statement. Gain accounts have normal balances on the credit
side. Increase in gains is reported on the credit
side of a journal entry. Decrease in gains is reported on the debit
side of a journal entry. |
| Losses are reported on the income
statement. Loss accounts have normal balances on the debit
side. Increase in losses is reported on the debit
side of a journal entry. Decrease in losses is reported on the credit
side of a journal entry. |
| Sample Balance Sheet Sample Income Statement Sample Statement of Cash Flows |
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