Common Elements of Financial Statement (Four Statement Model)
Abstract
This resource builds on the prior examples and introduces the notion of Common Elements of Financial Statements and the four statement model.
1. Introduction
This document specifies the elements of a financial statement, the interrelationships between those elements, and the parts of a financial statement. Note that the FASB does
not lay this information out as sustinctly or as completely. The purpose of this resourcse is to clear and complete.
The basic financial statements are understood to be the balance sheet, income statement, changes in equity, and cash flows statement. This is well understood and not disputed. This makes up the four statement model.
1.1 Elements
The following provides formal definitions of the high-level elements of a financial statement. These elements are informally defined by common practice. [FINANCIAL-STATEMENT].
Assets
Assets are probable future sacrifices of econmic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result
of past transactions.
DEBIT
as of point in time
Liabilities
Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result
of past transactions.
CREDIT
as of point in time
Equity
Equity or net assets is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest. In a not-for-profit
organization, which has no ownership interest in the same sense as a business enterprise, net assets is divided into three classes based on the presence or absense of donor-imposed restrictions: permanentaly restricted,
temporarily restricted, and unrestricted net assets.
CREDIT
as of point in time
Comprehensive Income
Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
CREDIT
for period of time
Investments by Owners
Investments by owners are increases in equity of a particular business enterprise resunting from transfers to it from other entities of something valuable to obtain or increase ownership interests (or equity) in it.
Assets are most commonly recieved as investments by owners, but that which is received may also include services or satisfaction or conversion of liabilities of the enterprise.
DEBIT
for period of time
Distributions to Owners
Distributions to owners are decreases in equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. Distributions to owners
decrease ownership interest (or equity) in an enterprise.
CREDIT
for period of time
Revenues
Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities
that constitute the entity's ongoing major or centeral operations.
CREDIT
for period of time
Expenses
Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering of producing goods, rendering of services, or carrying out of activities
that constitute the entity's ongoing major or central operations.
DEBIT
for period of time
Gains
Gains are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except
those that result from revenues or investments by owners.
CREDIT
for period of time
Losses
Losses are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result
from expenses or distributions of services.
DEBIT
for period of time
1.2 Interrelationships
The following provides information about the formal interrelationships between the elements of a financial statement that are informally defined by common practice.
[FINANCIAL-STATEMENT] or are implied and understood common practice.
Assets = Liabilities + Equity
The accounting equation; the sum of Assets is equal to the sum of Liabilities plus the sum of Equity. The accounting equation is well understood common practice. For additional information see:
Wikipedia, Accounting Equation
Comprehensive income = Revenues - Expenses + Gains - Losses
Comprehensive income is comprised of the sum of Revenues less the sum of Expenses plus the sum of Gains minus the sum of Losses.
Equity(T1) = Equity(T0) + Comprehensive income(P1) + Investments by owners(P1) - Distributions to owners(P1)
The ending balance of Equity (T1) is equal to the beginning balance of equity (T0) plus Comprehensive income for the period (P1) plus Investments by owners during the period (P1) less Distributions to owners during the period (P1).
The ending balance of Equity (T1) is equal to the beginning balance of Equity (T0) plus the components of Comprehensive Income for Comprehensive income for the period (P1) (Revenues, Expenses, Gains, Losses)
plus Investments by Owners during the period (P1) less Distributions to Owners during the period (P1) plus Liabilities(T1) less Assets(T1).
1.3 Statements
The following provides information about the formal statements within a set of financial statement that are informally defined by common practice and not disputed. [FINANCIAL-STATEMENT].
Statement of Financial Position
A Statement of Financial Position (a.k.a. Balance Sheet) is used to report the elements Assets, Liabilities and Equity.
Statement of Financial Condition
A Statement of Financial Condition (a.k.a. Income Statement, Statement of Operations) is used to report Revenues, Expenses, Gains, Losses, and Comprehensive Income.
Statement of Changes in Equity
A Statement of Changes in Equity is used to report Equity, Comprhensive Income, Investments by Owners, Distributions to Owners.
1.4 Examples
The following are examples of a set of financial statements using the elements of financial statements which conform to the interrelationships of the elements:
Statement of Financial Position
Statement of Financial Condition
Statement of Changes in Equity
1.6 Types
The following graphic shows types and subtypes (a.k.a. general-special assocations, wider-narrower associations) of the elements of financial statements:
1.7 References
The following is a summary of normative and informative references helpful in understanding this information:
