Accounting Elements - Introduction

Accounting elements are the broad categories of components of a financial statement.

There are following five accounting elements,

1. Assets
2. Expenses or Losses
3. Liabilities
4. Income or Revenue
5. Equity

These are the resources which an entity controls and uses to derive future economic benefits as the result past events.1- ASSETS:

Examples of these resources are;

1. Land
2. Building
3. Machinery
4. Computers
5. Stock
6. Cash in Hand
7. Cash at Bank

2- EXPENSES:

Cost (Monitory value) of the services availed or items consumed, is called as expense.

Examples of Expenses are;

1. Salaries & Wages
2. Rent Expense
3. Printing & Stationery
4. Electricity charges
5. Fuel Expense
6. Repair & Maintenance

3- LIABILITIES:

Liabilities are the financial obligations which arise from past events and result in outflow of financial resources.

Examples of Liabilities are;

1. Bills Payable
2. Salaries Payable
3. Loans
4. Tax Payable
5. Accrued Expenses

Explanation;

If we enjoy a service or acquire an asset without paying for it i.e. on credit then an obligation arises to pay cash or some other resource in future. This financial obligation is called as Liability in Accounting.

4- INCOME/REVENUE:

Revenue is total monitory value of cash and other economic resources generated by an entity from operating and non-operating activities. While, Income is arrived by netting-off all related expenses from revenue.

Explanation;

If an entity made total sales of 100,000 $ and incurred 60,000 $ as expenses in the month of October; then, Revenue = 100,000 $, and income is 40,000 $ (Revenue – Expenses).

5- EQUITY:

Owner’s or Share-Holder’s Investment in an entity is called as ‘Equity’.

Explanation;

Here the term Investment mean sum of Share Capital, Retained Earnings or Accumulated Profits and Reserves.

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Author: Zuhair Afzaal

Studied Chartered Accountancy and now Pursuing Professional Career as Financial Consultant, Manager Accounts and Finance. A teacher by passion and likes to make things easier for students by publishing courses and lecturing in on-campus and online classes
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