Five Elements of Financial Statements

Five elements of financial statements provide very useful information to various users in the form of written reports that show the financial performance and condition of a company at a specific period of time.

• Assets
• Liabilities
• Owner’s equity
• Revenues
• Expenses

Among the five elements of financial statements, assets, liabilities and owner’s equity can be found in the balance sheet while revenues and expenses can be found in the income statement.

Five Elements of Financial Statements

Assets

Assets are the first one of the five elements of financial statements. They can be defined as the resources that the company owns in which it uses for carrying out the business activities. They either have the current value (e.g. cash) or the future value (e.g. accounts receivable).

Assets can be classified into two types, current assets, and non-current assets. Twelve months is the line between current and non-current (longer than 12 months).

• Cash and cash equivalents
• Inventory
• Accounts receivable
• Property, plant, and equipment

Liabilities

Liabilities are the second one of the five elements of financial statements. They are what the company owes and has obligations to pay in the future. Like assets, liabilities can be classified into current liabilities and non-current liabilities.

• Accounts payable
• Interest payable
• Taxes payable
• Notes payable

Owner’s Equity

Owner’s equity is what remains after deducting total liabilities from total assets. It is another element of financial statements that can be found in the balance sheet:

It may includes:

• Common stock
• Retained earnings

Revenues

Revenues are the income that the company generates during a period of time by selling goods or providing services to the customers. Revenues are one of the five elements of financial statement which are usually found in the top line of the income statement.

• Operating revenues
• Non-operating revenues

Under accrual-basis accounting, the company only records transactions in the periods in which the events occur. In this case, revenues are only recognized when the company delivers goods or provides services to the customers, regardless of when it receives cash.

Expenses

Expenses are the cost that the company incurs in running the business during a period of time. Expenses are last one of the five elements of financial statements.

• Cost of goods sold
• Operating expenses
• Non-operating expenses

Under the accrual basis, the company recognizes expenses when they incur regardless of when the money is paid.