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Elements of financial statements

An asset is a present economic resource controlled as a result of past events; a liability is a present obligation to transfer an economic resource as a result of past events. Equity is the residual interest after deducting liabilities. Income and expenses are changes in assets and liabilities that increase or decrease equity, excluding owner contributions or distributions respectively. Meeting an element’s definition is separate from recognition and measurement under applicable standards.

Worked example

A customer owes an entity $1,000 for goods supplied. The receivable is an asset if the definition is met; the entity applies IFRS 15 and IFRS 9 to determine revenue and the recognised measurement.

Common mistake

Assuming every possible asset is recognised merely because it meets the definition, or treating a share issue from owners as income.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA FR Direct September 2026–June 2027
ACCA SBR Direct September 2026–June 2027