Elements of a Balance Sheet/ Statement of Financial Position: 1.

Assets are probable economic future benefits obtained or controlled by a par ticular entity as a result of past transactions or event. a. Current Assets are the account that represents the value of all asset s that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inv entory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. Cash and cash equivalents include currency, bank deposits, and various marketabl e securities that can be turned into cash on short notice merely by contacting a bank or broker. These amounts are presently available to meet the firms cash pay ment requirements. Note that only securities that are purchased within 90 days o f their maturity dates, or are scheduled to be converted to cash within the next 90 days, may be classified as cash equivalents. Accounts receivable represent credit sales that have not been collected yet. The y are converted into cash as soon as the customers or clients pay their bills (t heir accounts). Accounts receivable should turn over, or be collected, within th e firms normal collection period, which is usually 30 or 60 days. Inventory represents items that have been purchased or manufactured for sale to customers. That is, inventory can either be created through the manufacturing an d assembly efforts of the organization or be acquired from others and held for r esale. Prepaid expenses represent unexpired assets such as insurance premiums. Insuranc e policies, for example, are frequently paid ahead on an annual basis. The unexp ired portion, the portion of the policy paid for but not yet used, is shown as p art of prepaid expenses, which are interpreted as current assets. Prepaid are us ually minor elements of the balance sheet, and, in the usual course of events, p repaid will not be converted or turned into cash. Instead, the rights to future benefits will be used up in future periods.

b. Non Current Assets are company s long-term investments, in the case that the full value will not be realized within the accounting year. Noncurrent assets ar e capitalized rather than expensed, meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use, instea d of allocating the entire cost to the accounting year in which the asset was pu rchased. Property, Plant and Equipment are the non-current assets having some physical ex istence. They are alternatively called tangible fixed assets. They are grouped i nto different classes such as land, land improvements, buildings, vehicles, etc. Intangible Fixed Assets are assets having no physical existence, such as patents , copyrights, goodwill, etc. Long Term Investments are the investments which are not expected to be realized in the next 12 months. 2. Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide service s to other entities in the future as a result of past transactions or events. a. Current Liabilities are the debts a company owes which must be paid within on e year. This includes things such as short term loans, accounts payable, dividen ds and interest payable, bonds payable, consumer deposits, and reserves for Fede ral taxes.

 Accounts payable is the opposite of accounts receivable. It arises when a compan y receives a product or service before it pays for it. Accrued Benefits and Payroll is the item in the current liabilities section of t he balance sheet that represents money owed to employees as salary and bonus tha t the company has not yet paid. Short Term and Current Long Term Debit is current liability which is sometimes r eferred to as notes payable. It is the most important item under current liabili ties section of the balance sheet and most of the time; it represents the paymen ts on a company s bank loans that are due in the next twelve months. b. Non Current Liabilities represent obligations of the firm that generally are due more than one year after the balance sheet date. The major portion of noncur rent liabilities consists of notes and bonds payable. In addition, deferred inco me tax payments are an important component of liabilities for many companies. Long-term notes payable, those that come due in more than one year, are also ver y common. They differ from bonds mainly in the way the contract with the credito r is structured. A long-term note is a promissory note that represents a loan fr om a bank or other creditor, whereas a bond is a more complex financial instrume nt that usually involves debt to many creditors. Analysts often do not distingui sh between long-term notes and bonds because they have similar effects on the fi nancial statements. Firms often borrow money by signing notes payable to banks or other lending inst itutions. Such notes can either be interest-bearing or discounted notes. Long-term bonds are the most common type of long-term debt. They can have many d ifferent characteristics, including the amount of interest, whether the company can elect to repay them before their maturity date, and whether they can be conv erted to common stock. 3. Equity is the residual claim or interest of the most junior class of investor s in assets, after all liabilities are paid. If liability exceeds assets, negati ve equity exists. In an accounting context, Shareholders equity (or stockholder s equity, shareholders funds, shareholders capital or similar terms) represen ts the remaining interest in assets of a company, spread among individual shareh olders of common or preferred stock. Share capital or capital stock refers to the portion of a company s equity that has been obtained (or will be obtained) by trading stock to a shareholder for ca sh or an equivalent item of capital value. For example, a company can issue shar es in exchange for computer servers, instead of purchasing the servers with cash .

Elements of an Income Statement: 1. Revenue is the total amount received by a business or recognized as earned wh en the business sells something, usually services and goods. In modern accountan cy, revenue is recorded when it is earned not when the cash is received from cus tomers. For example when a phone service provider records revenue when calls are made not at the time when you pay the bills. This principle is known as revenue recognition principle. Revenue/Sales/Fees: These accounts are used interchangeably to record the main r evenue amounts. However most companies/businesses give their revenue account a m

ore specific name like: fees earned, service revenue, etc. Interest Revenue: is used to record the interest earned by the business. Rent Revenue: is the revenue from buildings or equipment of the business on rent . Dividend Revenue: is used to record the dividend earned on the stock of other co mpanies which is owned by the business. Sales Returns: Sometimes goods are retuned by the customers for some defect or d ue to some other reason. These are recorded in sales returns account which is a contra sales account. Sales Discounts: This account records the discounts given to customer on the gro ss amount. 2. Expense Accounts is the consumption of the business own resources or the cre ation of a liability against the business when it consumes resources from outsid e. Supplies Expense Utilities Expense Salaries Expense Depreciation Expense Insurance Expense Advertizing Expense Bad Debts Expense Fuel Expense Rent Expense Interest Expense License Expense Telephone Expense Tax Expense Warranties Expense Miscellaneous Expense