The structure of accounting is based on five financial statement elements. Assets, liabilities, and equity relate to a reporting entity’s financial position, while revenue (or income) and expenses relate to its financial performance.
Students must understand the nature and relationship of these elements if they are to master accounting fundamentals.
Of the five financial statement elements, equity is the most mercurial. In part, because it’s total amount is measured as the total of recognised assets less the total of recognised liabilities, expressed in this form of the accounting equation. Assets – Liabilities = Equity (net assets) Measuring total equity as…Read more
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Paul Jennings gives some useful tips and sequences for teaching liabilities. The elements of financial statements are the building blocks of financial statements. If your students understand what the elements are then they will understand the basis for reporting events in financial statements. Those elements – assets, liabilities, equity, income…Read more
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Dictionaries, from an accounting perspective, invariably provide an incorrect and conflated definition of income. …Read more
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The elements of financial statements are the building blocks of financial statements. If your students understand what the elements are then they have a good basis for understanding how events are reported in financial statements. Those elements – assets, liabilities, equity, income and expenses – are key to understanding financial…Read more
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Expenses are a perfect illustration of how accounting uses common language in specific and uncommon ways. …Read more
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With gratitude to Paul Jennings for this clever idea. Some students find it difficult to appreciate that assets are rights, not things in and of themselves. I used to tell students that in the old days we put motor vehicles on balance sheets but they kept falling off. It didn’t…Read more
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