Asset
A resource controlled by an entity as a result of past event and from which future economic benefits are expected to flow
to the entity
• Non-Current Assets: Asset from which benefit is expected to be obtained for more than 12 months
• Current Assets: Assets from which benefit is expected to be obtained for less than 12 months.
Liabilities
A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an
outflow from the entity of resources embodying economic benefits
• Non-Current Liabilities: Liabilities that are expected to be paid after 12 months.
• Current Liabilities: Liabilities that are expected to be paid within 12 months.
Capital / Equity
Capital / Equity is the residual interest in the assets of the entity after deducting all its liabilities.
Income
Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets
or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity
participants.
Revenue
Revenue is the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating
activities of an enterprise (such as sales of goods, sales of services, interest, royalties and dividends)
Expense
Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets
or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity
participants.
Business Entity Concept
Financial reports are constructed as if the business entity is separate from its owners. In other words, the business entity
and its owners are differentiated.
Financial Statements and its components
Financial statements are reports of an entity to provide its stakeholders with necessary information for their decision
making needs. The components include:
• A statement of financial position → A statement of financial position (also called balance sheet) reports the
financial position of an entity as at a particular date. The financial position of an entity is shown by its assets,
liabilities and equity (owner’s capital).
• A statement of comprehensive income → This statement provides information about the performance of an entity
in a period.
• A statement of changes in equity
• A statement of cash flows
• Notes to the financial statements
Types of Businesses:
• Sole Trade: a business owned and managed by a single individual is called a sole trade business or sole
proprietorship business. In law, a sole trader is not legally separate from the business they operate. The owner is
legally responsible for the business. Owner / proprietor is personally liable for the debts of the business.
• Partnership: Partnerships occur when two or more people decide to run a business together. Partnerships are
generally formed by contract. Partnership agreements are legally binding and are designed to outline the
proportionate amount of capital invested, allocation of profits between parties and the responsibilities of each of
the parties. Like sole trader, partners are also personally liable for the debts of the business
• Company: A company is a legal entity formed by a group of individuals to engage in and operate a business or
commercial enterprise. In the eyes of law a company is a legal entity separate from its owner and is itself liable for
the debts of the business. The owners are called shareholders or members of the company
o Limited Liability Company: the shareholders of a limited liability company are only responsible for the
amount paid for their shares. They are not responsible for the company's debts.
o Unlimited Company: It is a type of business structure where the owners or shareholders have unlimited
personal liability for the company's debts and obligations.
Types of Assets
Non-Current Assets Current Assets
Land Stock in trade / Inventory / Merchandize
Building Accounts receivables
Furniture Advances / Prepaid expenses
Plant Cash in hand
Machinery Cash at bank
Equipment Loans to others
Motor vehicles Other receivables
Fixtures Income receivable
Loan to other company
Computers
Types of Liabilities
Non-Current Liabilities Current Liabilities
Bank Loan Accounts payables
Loan from other companies Expenses payable / Accrued expenses
Bank overdraft
Short term loans
Other payables
Types of Income Types of Expenses
Sales Salary and wages expense
Gain on disposal Rent expense
Discount received Electricity expense
Investment income Utilities expense
Other incomes Loss on disposal
Purchase returns Interest expense
Interest income Repairs and maintenance expense
Discount allowed
Sales return
Printing and stationary expense
Fuel expense
Other expenses