Elements Of Financial Statements

Entity: An entity is an economic unit which performs economic activities. Ex: Tata Steel, H.M.T. Ltd.

Business transaction: A transaction is an exchange of goods or services for cash or credit. It involves transfer of money or money’s worth that brings about change in the financial position of a business.

Trade debtors: Trade debtors are the persons from whom the amount are due for goods sold or services rendered on credit basis.

Trade creditors: Trade creditors are those to whom the amounts are due for goods purchased or services rendered on credit basis.

Goods: Goods are those with which the business firm trades. They are meant for resale.

Assets: Assets are those which yield future economic benefits.

Current Assets: Current assets are those assets which are held in cash or which are likely to be converted into cash during the financial year.

Fixed Assets: Fixed assets are those assets which are not held for resale in normal course of business.

Tangible Fixed Assets: The assets that can be visible, seen and touched are called as “Tangible Fixed Assets”.

Intangible fixed assets: The assets that cannot be visible, seen and touched are called as “Intangible Fixed Assets”.

Liabilities: The financial obligations of the firm are called liabilities.

Current Liabilities: The liabilities which fall due in a short period are known as “Current Liabilities”.

Long term liabilities: The liabilities which fall due for payment in a relatively short period are called long term liabilities.

Purchases: The total amount of goods obtained by an enterprise for resale either for cash or credit.

Sales: The amount for which goods are sold or services are rendered either for cash or credit is called sales.

Expenditure: The amount incurred in the process of acquiring goods, assets or services.

Revenue: The amount charged for the goods sold or services rendered by an enterprise.

Capital: Capital is the amount invested by the owner/proprietor in the firm. It is a liability to the firm.

Drawings: Cash or goods withdrawn by the proprietor from the business for his personal or household use is termed to as “drawings”.

Reserve: An amount set aside out of profits or other surplus and designed to meet contingencies.

Account: A summarized statement of transactions relating to a particular person, thing, expense or income.

Discount: There are two types of discounts:

Cash discount: An allowance made to encourage prompt payment or before the expiration of the period allowed for credit.

Trade discount: A deduction from the gross or catalogue price allowed to traders who buy them for resale.