Framework Essay

381 WordsMay 20, 20132 Pages
Definition of a asset Resource controlled by the business As a result of a past event Which will result in future economic benefits flowing inward. An entity usually employs its assets to produce goods or services,capable of satisfying the needs and wants of customers; because it satisfys the needs and wants of a customer they are prepared to pay for it and hence contribute to the cash flow of the entity. The future economic benefits emobodied in an asset may flow to the entity in a number of ways Used alone or with other resources to produce products or services Exchanged for other assets Used to settle a liability Distributed to the owners of the entity Recognition of assets An asset is recognised in the statement of financial position when it is probable that future economic benefits will flow to the entity and the asset has a cost or value that can be messured reliabily. Definition of a liability Present obligation As a result of a past event Which results in future economic benefits flowing outward An obligation is a duty or responsibility to act a certain way. Settlement of present obligations can occur in a number of ways Payment of cash Transfer of assets Provision of services Recognition of a liability Liability is recignised in the statement of financial position when it is probable that an outfow of resources wil occur from settlement of a present obligation and the amount can be messured reliabily. Definition of income Increase in future economic benefits As a result of a decrease in liablities or a increase in assets Example when goods are sold on cash the assets increase and equity increases. Income on credit increases the recievables and increases the equity. Decrease in liablities can occur when an entity provides goods and services to a lender in settlement of an obligation to repay an outstanding loan. Recognition

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