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11ACC1.1 - 2025 - Lesson Activity 5 Financial Elements

This document outlines the financial elements of accounting, focusing on the basic and expanded accounting equations. It defines key concepts such as assets, liabilities, owner's equity, revenue, and expenses, and explains their roles in financial statements. The lesson includes activities for students to categorize financial elements and understand their definitions.

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Janice Baltor
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16 views4 pages

11ACC1.1 - 2025 - Lesson Activity 5 Financial Elements

This document outlines the financial elements of accounting, focusing on the basic and expanded accounting equations. It defines key concepts such as assets, liabilities, owner's equity, revenue, and expenses, and explains their roles in financial statements. The lesson includes activities for students to categorize financial elements and understand their definitions.

Uploaded by

Janice Baltor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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11 ACCOUNTING

Strand 1: Communication Financial Sub-strand 1.1 Conceptual Basis of


and Non-Financial Information Accounting
LESSON ACTIVITY 5: Financial Elements

The Specific Learning Outcomes (SLO) targeted in this lesson is provided in the
table below.
SLO # Students are able to: Skill Level SLO Code
1 Identify the financial elements that make up the basic 1 11ACC1.1.1.5
and expanded accounting equations.
2 Define the financial elements of accounting. (Assets, 1 11ACC1.1.1.6
liabilities, expenses and equity)

Financial Elements

From the basic accounting equation above – we can see that there are 3 things of which
we refer to as financial elements – assets, proprietorship/owners’ equity & liabilities. We
will look at the first 3 elements first and then move on to the next 2 elements.

Net worth (Equity/Proprietorship) = Assets – Liabilities

This same principle which is relevant for individuals can be applied to businesses.
However, because we are dealing with an accounting entity which is separate to the
owner, the difference between the value of assets and liabilities is described as
proprietorship or owner’s equity. This is the owner’s contribution to the business. This is
known as the accounting equation:

1. Assets
• A resource with an economic value that the entity owns or controls with the
expectation that it will provide future benefit. Th business must have control
over these resources for them to be called assets of the business. Examples
of assets included cash, supplies, fittings, furniture, buildings, equipment,
inventory, car/vehicle, trucks, machinery and land.

2. Liabilities
• A liability is an obligation has to an outside party (organization or individual)
that would result in future economic loss to the entity – they are claims
against assets of the business.
• Liabilities are amounts owed to another company, entity or individual

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Compiled and revised by: Ms Janice Baltor, 2025, Santo East
• Creditors – party to whom the business owes them money
• Examples of liabilities included accounts payable, mortgages, loan
repayment, bank overdraft, etc…

3. Owner’s Equity/Proprietorship
• This is the net worth of a business. Proprietorship is also known as the
business capital.
• The owner of the business is called the proprietor. The owner’s equity of a
business equals the assets of the business less the liabilities of the
business.

P = A – L or it can be written as:


A=L+P

• The owner’s claim to business’ total assets after all liabilities have been paid
off.
• Proprietorship accounts include- Capital, Drawings etc.

The accounting equation forms the basis of the first financial statement for a business
that you will meet. This financial statement is called a Statement of Financial Position.
A balance sheet states the financial position of business at a particular date. This
statement used to be called a Balance Sheet.

(Move to Lesson Activity 6, read about Accounting Equation then do Activity


6.1 and 6.2)

The other 2 financial elements are:

4. Revenue/Income
• Revenues result from business activities entered into for the purpose of
earning income
• Common sources of revenue are: sales, fees, services, commissions,
interest received, and dividends, rent received etc…

5. Expenses
• The costs of assets consumed or services used in the process of earning
revenue.
• Common expenses are salaries expense, rent expense, utilities expense,
tax expense etc.

2
Compiled and revised by: Ms Janice Baltor, 2025, Santo East
Therefore, our basic accounting equation can be extended to include the above 2 financial
elements – revenue and expenses.

Activity 5.1 – Recognizing & categorizing financial elements

1. State the expanded/extended accounting equation.


2. What do we mean by?
a. Revenue
b. Expenses

3. Using the definitions you learnt about the five different financial elements,
categorize the following accounts under the correct financial element. Use
Google or you can ask from your fellow peers in Year 12.

Resource list:

Inventory, Accounts Payable, Office Supplies, Loan, Equipment, Mortgage, Buildings,


Sales Commission, Drawings, Capital, Sales, Commission Received, Utilities, Rent
Received, Rent, Internet Bill, Salaries.

Assets Liabilities Revenue Owner’s Expenses


Equity

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Compiled and revised by: Ms Janice Baltor, 2025, Santo East
4. Complete the table below with the right financial element or the right definition of
the element.

Revenue

All of the debts that the company currently has outstanding to


lenders.
Assets

The owners’ interest in its assets, after all debts have been repaid.

Expenses

4
Compiled and revised by: Ms Janice Baltor, 2025, Santo East

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