|Element||Definition / Characteristics|
|Asset||For an asset to exist, these 3 criteria must be satisfied: a) The entity must have the right to receive cash/goods or services / right to barter; b) Potential to produce economic benefits; c) Possess control / legal rights.|
|Liability||For liability to exist, these 3 criteria must be satisfied: a) The entity must have an obligation; b) The obligation is to transfer an economic resource; c) The obligation is a present obligation that exists as a result of past events.|
|Equity||The residual interest in the assets of the entity after deducting all its liabilities.|
|Income||Increases in assets, or decreases in liabilities, that result in an increase in equity, other than those relating to contributions from holders of equity claims.|
|Expenses||Decreases in assets, or increases in liabilities, that result in a decrease in equity, other than those relating to contributions from holders of equity claims.|
Bookkeeping is the part of accounting that is concerned with recording financial data. Financial data is categorized into five elements namely Asset, Liability, Equity, Income, and Expenses. If you search google engine there are numerous examples of what is an asset, liability, equity, income, and expenses. As a practitioner, it is useful to know the examples. However, one needs to understand the definition of each element. Here are the definitions from the Conceptual framework issued by Singapore Financial Reporting Standards (SFRS) below:
The underlying financial data has to be matched with one of the 5 elements. This is the correct approach to identifying asset, liability, equity, income, and expenses.
Obtaining a firm grasp of the elements is necessary to understand the Accounting Equation. This will be our next topic of discussion.