Basic Elements of Accounting

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There are Five Basic Elements of Accounting and Financial Statements:

|Assets |Economic resources owned by the company which are expected to provide future | | |benefits. Historically, assets have been accounted for at cost. However, current | | |accounting guidance is moving towards more fair value asset valuation models. | | | | | |Examples: Cash, A/R, Inventory, Property, Plant and Equipment (PPE) | |Liabilities |Obligations of the company requiring a future outlay of assets. Liabilities | | |represent creditors’ claims against the assets of the company. | | | | | |Examples: A/P, Notes Payable, Mortgages Payable, Bonds Payable, Anything Payable | |Owner Equity |The amount of capital invested by the owners of the company. | | | | | |Examples: Common Stock, Preferred Stock, Retained Earnings | |Revenue |What is earned for goods and/or services provided by the company. Revenues are | | |recorded with the goods and/or services are provided independent of the receipt of | | |cash. | | | | | |Examples: Sales, Commissions Earned, Consulting Fees Earned | |Expenses |Costs incurred generating revenue. Expenses are recorded in the same period that | | |the related revenue is recorded (matching principle). | | | | | |Examples: Cost of Goods Sold, Salary and Benefit Expense, Commission Expense, | | |Consulting Expense |

The first three elements Assets, Liabilities and Owner Equity make up the company’s Balance Sheet:Assets = Liabilities + Owner Equity

The last two elements, Revenue and Expense, make up the company’s Income Statement:Revenue – Expense = Net Income (Loss)

XYZ Company
Balance Sheet
December 31, 20XX
(In thousands of dollars)

Assets

|Current Assets: | | | | |Cash | | |$ 30,000 | |Marketable Securities | | |11,000 | |Accounts Receivable | | |65,000 | |Inventory...
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