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Definition of Asset

The document defines key accounting terms - asset, liability, equity, income, and expense. An asset is a present economic resource controlled by an entity due to past events. A liability is a present obligation of an entity to transfer an economic resource due to past events. Equity is the residual interest in an entity's assets after deducting liabilities. Income increases equity through increases in assets or decreases in liabilities. Expenses decrease equity through decreases in assets or increases in liabilities. The document also discusses classifying assets and liabilities as current or non-current.

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Kasey Pastor
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85 views14 pages

Definition of Asset

The document defines key accounting terms - asset, liability, equity, income, and expense. An asset is a present economic resource controlled by an entity due to past events. A liability is a present obligation of an entity to transfer an economic resource due to past events. Equity is the residual interest in an entity's assets after deducting liabilities. Income increases equity through increases in assets or decreases in liabilities. Expenses decrease equity through decreases in assets or increases in liabilities. The document also discusses classifying assets and liabilities as current or non-current.

Uploaded by

Kasey Pastor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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DEFINITION OF

ASSET
4.3 An asset is a present economic resource controlled by
the entity as a result of past events.
4.4 An economic resource is a right that has the potential
to produce economic
benefits.
4.5 This section discusses three aspects of those
definitions:
(a) right;
(b) potential to produce economic benefits; and
(c) control.
CLASSIFICATION
OF ASSETS
PAS 1 par. 66

An entity shall classify an asset as current when:


(a) it expects to realize the asset, or intends to sell or consume it,
in its normal operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realize the asset within twelve months after the
reporting period; or
(d) the asset is cash or a cash equivalent unless the asset is
restricted from being exchanged or used to settle a liability for
at least twelve months after the reporting period.

An entity shall classify all other assets as non‑current.


DEFINITION OF
LIABILITY
A liability is a present obligation of the entity to transfer an
economic resource as a result of past events.

For a liability to exist, three criteria must all be satisfied:


(a) the entity has an obligation;
(b) the obligation is to transfer an economic resource; and
(c) the obligation is a present obligation that exists as a result of
past events.
CLASSIFICATION
OF LIABILITIES
PAS 1 par. 69

An entity shall classify a liability as current when:


(a) it expects to settle the liability in its normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the
reporting period; or
(d) it does not have an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period (see
paragraph 73). Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.

An entity shall classify all other liabilities as non‑current.


DEFINITION OF
EQUITY
Equity is the residual interest in the assets of
the entity after deducting all its liabilities.
DEFINITION OF
INCOME
Income is increases in assets, or decreases
in liabilities, that result in increases in
equity, other than those relating to
contributions from holders of equity
claims.
DEFINITION OF
EXPENSE
Expenses are decreases in assets, or
increases in liabilities, that result in
decreases in equity, other than those
relating to distributions to holders of
equity claims.

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