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    CFAS (Chapter 5)

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    RINCONADA Reynalyn
    The document defines key elements of financial statements including assets, liabilities, equity, income, and expenses. Assets are defined as present economic resources controlled by an entity from past events. Liabilities are present obligations to transfer economic resources from past events. Income increases equity from revenues or gains, while expenses decrease equity. [/SUMMARY]

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    CFAS (Chapter 5)

    Uploaded by

    RINCONADA Reynalyn
    76 views4 pages
    The document defines key elements of financial statements including assets, liabilities, equity, income, and expenses. Assets are defined as present economic resources controlled by an entity from past events. Liabilities are present obligations to transfer economic resources from past events. Income increases equity from revenues or gains, while expenses decrease equity. [/SUMMARY]

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    CFAS [Chapter 5]

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    The document defines key elements of financial statements including assets, liabilities, equity, income, and expenses. Assets are defined as present economic resources controlled by an entity from past events. Liabilities are present obligations to transfer economic resources from past events. Income increases equity from revenues or gains, while expenses decrease equity. [/SUMMARY]

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    © All Rights Reserved
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    76 views4 pages

    CFAS (Chapter 5)

    Uploaded by

    RINCONADA Reynalyn
    The document defines key elements of financial statements including assets, liabilities, equity, income, and expenses. Assets are defined as present economic resources controlled by an entity from past events. Liabilities are present obligations to transfer economic resources from past events. Income increases equity from revenues or gains, while expenses decrease equity. [/SUMMARY]

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    © All Rights Reserved
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    RINCONADA, REYNALYN B.

    Conceptual Framework And Accounting Standards

    BSA-2

    CHAPTER 5

    QUESTIONS:

    1. Define elements of financial statement.

    Answer: The elements of financial statements refer to the quantitative information reported in the statement of
    financial position and income statement.

    The elements of financial statements are the "building blocks from which financial statements are constructed.

    2. What are the elements directly related to the measurement of financial position?

    Answer: Assets, Liability, and equity

    3. What are the elements directly related to the measurement of financial performance?

    Answer: The elements directly related to the measurement of financial performance are:

    a. Income

    b. Expense

    4. Define an asset.

    Answer: Under the Revised Conceptual Framework, an asset is defined as a present economic resource controlled
    by the entity as a result of past events.

    5. What are the essential characteristics of an asset?

    Answer: a. The asset is a present economic resource.

    b. The economic resource is a right that has the potential to produce economic benefits.

    c. The economic resource is controlled by the entity as a result of past events.

    6. Explain a right to produce economic benefit.

    Answer: Rights that have the potential to produce economic benefits may take the following forms:

    1. Rights that correspond to an obligation of another entity.

    a. Right to receive cash

    b. Right to receive goods or services

    c. Right to exchange economic resources with another party on favorable terms

    d. Right to benefit from an obligation of another party it a specified uncertain future event occurs
    2. Rights that do not correspond to an obligation of another entity.

    a. Right over physical objects, such as property, plant and equipment or inventories

    b. Right to intellectual property

    3. Rights established by contract or legislation such as owning a debt instrument or an equity instrument or owning
    registered patent.

    7. Explain control of an economic resources.

    Answer: An entity controls an asset if it has the present ability to direct the use of the asset and obtain the economic
    benefits that flow from it.

    Control also includes the ability to prevent others from using such asset and therefore preventing others from
    obtaining the economic benefits from the asset.

    Control may arise if an entity enforces legal rights.

    If there are no legal rights, control can still exist if an entity has other means of ensuring that no other party can
    benefit from an asset.

    8. Define a liability.

    Answer: Under the Revised Conceptual Framework, a liability is defined as present obligation of an entity to
    transfer an economic resources as a result of past events.

    The new definition clarifies that a liability is a obligation to transfer an economic resource and not the ultimate
    outflow of economic benefits.

    9. What are the essential characteristics of a liability?

    Answer: Essential characteristics of liability

    a. The entity has an obligation.

    The entity liable must be identified. It is not necessary that the payee or the entity to whom the
    obligation is owed be identified.

    b. The obligation is to transfer an economic resource.

    c. The obligation is a present obligation that exists as a result of past event.

    This means that a liability is not recognized until it incurred.


    10. Explain an obligation.

    Answer: An obligation is a duty or responsibly that an entity has no practical ability to avoid. Obligations can either
    be legal or constructive.

    Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement.

    11. Explain transfer of economic resources.

    Answer: Transfer to an economic resource.

    Obligations to transfer an economic resource include:

    a. Obligation to pay cash.

    b. Obligation to deliver goods or non-cash resources

    C. Obligation to provide services at some future time.

    d. Obligation to exchange economic resources with another party on unfavorable terms.

    e. Obligation to transfer an economic resource if specified uncertain future event occurs.

    12. Define income.

    Answer: Income is defined as increases in assets or decreases in liabilities that result n increases in equity, other than
    those relating to contributions from equity holders.

    13. Distinguish income from revenue.

    Answer: Revenue is the total amount of income generated by the sale of goods or services related to the company's
    primary operations. Revenue, also known as gross sales, is often referred to as the "top line" because it sits at the top
    of the income statement. Income, or net income, is a company's total earnings or profit.

    14. Define an expense.

    Answer: Expense is defined as decreases in assets or increases in liabilities that result in decreases in equity, other
    than those relating to distributors to equity holders.

    15. Distinguish expenses from loss.

    Answer: Expenses encompass losses as well as those expenses that arise in the course of the ordinary regular
    activities.

    Expenses that arise in the course of ordinary regular activities include cost of goods sold, wages and depreciation.

    Losses do not arise in the course of the ordinary regular activities and include losses resulting from disasters.
    PROBLEM 5-1 Multiple choice (ACP)

    1. A

    2. C

    3. A

    4. A

    5. B

    6. D

    7. C

    8. D

    9. B

    10. A

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