Elements - accounting PDF

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Asset Assets are resources controlled by the entity as a result of a past event (usually a transaction), from which future economic benefits are expected to flow to the entity. Example: Explain why delivery vans is an asset for Quick Couriers Answer: In the past, Quick Couriers purchased the delivery van. Quick Courier have present control of the delivery van and can decide how the delivery van is used. In the future, Quick Couriers will use the delivery van to deliver parcels. This will result in deliver fees income as their customer will pay for the deliveries, which will result in cash being received. This cash is economic benefit.

Liability Liabilities are present obligation of the entity arising from a past event (usually transactions), the settlement of which is expected to result in an outflow of economic benefits from the entity Example: Explain why a loan from ANZ is a liability for The Warehouse Answer: In the past, The Warehouse raised a loan from ANZ bank. The Warehouse owe ANZ money and have present obligation to pay them back. In the future, The Warehouse will pay ANZ bank with the fees they received. This will result in an outflow of cash which results in economic benefit.

Income Income is increases in economic benefits in the accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in increases in equity, other than owner’s contributions. Example: Explain why delivery fees is an income of Quick Couriers Answer: Delivery fees increases Quick Courier’s asset bank when the customers pay Quick Courier for delivering their parcels. Delivery fees will increase Quick Courier’s profit and therefore will increase equity. Delivery fees are not a contribution by the owner, Quinn.

Expenses Expenses are decreases in economic benefit during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than drawings. Example: Explain why diesel and oil is an expense for Quick Couriers Answer: When Quick Couriers pay for diesel and oil, their asset bank decreases. This results in a decrease in Quick Courier’s profit which decreases equity. Diesel and oil is used for Quick Courier’s delivery vans, not for Quinn (the owner) personal use, so it is not drawings.

Depreciation Depreciation is the systematic allocation of the cost minus residual value of an asset over its useful life. This is so that the carrying amount represents the future economic benefit that the asset has to offer the business. Example: Explain what depreciation on shop fittings of $1000 represents Answer: Depreciation of $1000 on shop fittings of the systematic allocation of the cost minus the residual value of the shop fittings over its useful life. This is so that the carrying amount represents the future economic benefit that the shop fitting has to offer the business.

Equity Equity is the residual value of assets- liabilities...