20 Accounting: Business Reporting for Decision Making
Assets
Assets are defined as ‘a resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity’ (para. 4.4(a)). Examples of assets for JB Hi-Fi Ltd
include plant and equipment, cash, inventories, goodwill and intangible assets. For the Qantas Group,
they include inventories, property, plant and equipment, intangible assets and investments.
Liabilities
Liabilities are defined as ‘a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying economic benefits’
(para. 4.4(b)). Examples of liabilities for JB Hi-Fi Ltd include borrowings, trade payables and current
tax payable. For the Qantas Group, they include payables, lease obligations, revenue received in advance
and provisions.
Equity
Equity is defined as the residual interest in the assets of the entity after deducting its liabilities. Equity
is increased through the contributions of owners, and through the excesses of the entity’s income over
its expenses. Equity is decreased by excesses of expenses over income and by distributions to owners.
Examples of equity for JB Hi-Fi Ltd include capital contributions, dividends, reserves and retained
earnings. Examples for the Qantas Group include issued capital, treasury shares, reserves and retained
earnings. For a sole trader and a partnership, the equity will be in the form of capital (owner(s) contribu-
tions). Withdrawals from the business will be in the form of drawings.
Income
Income is defined as ‘increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in increases in equity, other than those
relating to contributions from equity participants’ (para. 4.25(a)). Examples of income for JB Hi-Fi Ltd
include revenue, interest, and dividend income from investments in other entities. Examples from the
Qantas Group include passenger revenue and freight revenue.
Expenses
Expenses are defined as ‘decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than
those relating to distributions to equity participants’ (para. 4.25(b)). Examples of expenses for JB Hi-Fi
Ltd include sales and marketing expenses, rent expense, finance costs and salaries. Examples for the
Qantas Group include fuel, depreciation and amortisation, impairment, aircraft operating variable, and
manpower and staff-related expenses.
VALUE TO BUSINESS• The Conceptual Framework establishes the objectives of financial statements and identifies the
different users of general purpose financial statements.
• The Conceptual Framework deals with transactions and other events that are not currently included
in the accounting standards.
• The Conceptual Framework identifies the qualitative characteristics that financial information
should possess. The fundamental characteristics are relevance (including materiality) and faithful
representation. The enhancing characteristics are comparability, verifiability, timeliness and
understandability. It also discusses the cost constraint on the provision of relevant and faithfully
represented information.
• The Conceptual Framework establishes definitions of the elements of the financial statements and
specifies what is required of each of the elements for inclusion in the financial statements.