Question

There are 10 elements of financial statements defined in SFAC 6. What are they?

Answer 1

SFAC 6 defines 10 elements of financial statements: Assets, Liabilities, Equity, Investment by Owners, Distribution to Owners, Comprehensive Income, Revenues, Expenses, Gains, and Losses. These elements provide a structured approach to financial reporting, helping in the identification, measurement, and communication of economic events.

Step-by-step explanation:

Understanding the Elements of Financial Statements according to SFAC 6

The Financial Accounting Standards Board (FASB) in its Statements of Financial Accounting Concepts No. 6 (SFAC 6) defines 10 elements of financial statements, which are:

1. Assets
2. Liabilities
3. Equity (or Net Assets)
4. Investment by Owners
5. Distribution to Owners
6. Comprehensive Income
7. Revenues
8. Expenses
9. Gains
10. Losses

These elements play a pivotal role in the structuring and understanding of financial statements, as they provide a framework for identifying, measuring, and reporting economic events. Assets represent the resources controlled by the entity as a result of past events and which are expected to provide future economic benefits. Liabilities stand for present obligations that arise from past events, which are expected to result in an outflow of resources that embody economic benefits.

Equity, or Net Assets, reflect the residual interest in the assets of the entity after deducting liabilities. Investment by Owners indicates the total amount of assets that owners have contributed to the entity, while Distribution to Owners refers to the reduction of equity due to transfers to owners. Comprehensive Income involves changes in equity during a period from transactions and other events from non-owner sources. Revenues are inflows or other enhancements of assets from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations. Expenses represent outflows or other using up of assets or incurrences of liabilities. Gains and Losses are increases and decreases in equity from peripheral or incidental transactions respectively.