DipIFRS ACCA course - IAS1 The Elements of Financial Statements No.9

DipIFRS ACCA course - IAS1 The Elements of Financial Statements No.9

Note that issuing the financial statements is one of the responsibilities of management !!!!
Financial statements depict the financial implications of transactions and other events by ..
grouping them into broad classes according to their economic characteristics
These broad categories are called financial statement elements.

The financial statements are:

1. Statement of financial position / Balance sheet
2. Income Statement / P&L
3. Other comprehensive income
4. Cash Flow Statement
5. Statement of Changes in Equity
6. Disclosure

Note that :

- These include historical data, which are management's assertions of the availability of each component of the financial statements
- The Statement of financial position and income Statement includes the elements that are repeated in the rest of the other Statements !!

Elements of financial statements include
The elements directly related to the financial position (the Balance Sheet) are :
1. Assets.
2. Liabilities.
3. Equity.

These elements represent Accounting Equation
Assets = Liabilities + Equity

An 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

A Liability
is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

is the residual interest in the assets of the entity after deducting all its liabilities
And also among the elements of the financial statements there

elements directly related to performance (income statement) are :
1. Income.
2. Expenses.
3. Gains.
4. Losses.
and These elements represent the income equation
Income (or Loss) = Revenues + Gains - Expenses - Losses

Revenues Or Income are inflows, other improvements to assets, or settlement of liabilities (or both) from the delivery or production of goods or the provision of services or other activities that are continuous major or central operations.

Expenses are outflows, other uses of assets, or increases in liabilities (or both) from delivering or producing goods, providing services, or other activities that are continuous major or central operations.

Gains are an increase in equity (or net assets) other than revenues or investments by owners.

Losses are a decrease in equity (or net assets) other than expenses or dividends to owners.
and Losses are the decrease in net assets resulting from incidental transactions

Note that the primary distinction between revenues and Gains is based on ..
The nature of the activities that led to the specific transactions.
However, the income statement includes .. Temporary .. nominal accounts.
Unlike balance sheet accounts, they are permanent .. real accounts.

Where they are closed to retained earnings and the account of retained earnings is a permanent account in the balance sheet and the process of closure takes place at the end of each fiscal year.

Accordingly, those balances in the balance sheet move from year to year

In contrast At the beginning of each fiscal year, the balances in the income statement accounts are zero.

While the cash flow statement reflects both:
1. Income statement elements.
2. Some changes in balance sheet elements.

Note that this statement is the only statement that is prepared on a cash basis, while all other statement are prepared on an accrual basis.

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