Accounting Online Program Certification Practice Test

Which of the following are considered elements of financial statements by the IASB?

1. Revenue / Expenses / Liabilities

2. Income / Assets / Transactions

3. Income / Expenses / Equity / Assets

4. Assets / Liabilities / Cash Flow

The correct answer is: Income / Expenses / Equity / Assets

The elements of financial statements defined by the International Accounting Standards Board (IASB) include income, expenses, equity, and assets. These components are essential for providing a comprehensive view of a company's financial performance and position. Income is recognized as the increases in economic benefits during an accounting period, resulting in an increase in equity except for contributions from equity participants. Conversely, expenses represent the outflows, depletion of assets, or incurrence of liabilities that contribute to a decrease in equity. Assets are resources controlled by the entity that are expected to generate future economic benefits, and equity represents the residual interest in the assets of the entity after deducting liabilities. Together, these elements present a clear picture of a company's profitability, financial health, and the changes in its net worth. Other options do not fully encompass the framework established by the IASB. For example, while revenue and expenses are key to understanding financial statements, the absence of equity in the first choice means it does not represent all the necessary elements. Similarly, cash flow, while crucial for understanding liquidity, is not categorized as an element of a financial statement under IASB definitions.