The Vital Elements that Form a Comprehensive Picture of the Entity’s Financial Position and Operational Performance
The building blocks of financial statements are the essential components that provide a comprehensive view of a company’s financial health, performance, and position.
Elements related to the measurement of financial position are:
- Assets: Resources controlled by a company that provides future economic benefits.
- Liabilities: Obligations a company owes to external parties arising from past transactions or events.
- Equity: Residual interest in a company’s assets after deducting liabilities.
Elements related to the measurement of financial performance are:
- Revenue: Amount of money a company earns from its primary business activities
- Expenses: The costs incurred by a company to generate revenue.
Elements related to the measurement of cash flow are:
- Operating Activities: Cash flows from a company’s core business operations.
- Investing Activities: Cash flows from a company’s investments in or disposal of long-term assets.
- Financing Activities: Cash flows from a company’s debt and equity financing.
Elements related to the measurement of changes in equity:
- Contributed Capital: Funds invested in a company by shareholders in exchange for ownership.
- Retained Earnings: Accumulated profits not distributed as dividends.
- Comprehensive Income: Changes in equity that bypass the income statement, such as unrealized gains or losses on available-for-sale securities.