Generally Accepted Accounting Principles
in the United States

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Elements of Financial Statements
(SFAC No. 6)

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SFAC No. 6

Statement of Financial Accounting Concepts (SFAC) No. 6
Elements of Financial Statements
        b.  Issued in December 1985
        c.  SFAC No. 6 replaces SFAC No. 3.

SFAC No. 6 includes the concepts of 

            --> probable future economic benefits
             --> obtained or controlled by an entity
             -->      as a result of
                        past transactions or events.

            --> probable future sacrifices of economic benefits
             --> due to present obligations of an entity
                        (to transfer assets or provide services in the future)
             -->      as a result of
                        past transactions or events.

Equity (Net Assets)
            --> the residual interest
             --> in the assets
                   after deducting its liabilities.

             --> Equity (Net Assets) = Assets - Liabilities

     Investments by Owners
   Distributions to Owners
     Comprehensive Income
            --> inflows of assets
                         (or settlements of its liabilities)
             --> from activities that constitute
                        the entity's ongoing major or central operations.

            --> outflows of assets
                         (or incurrences of liabilities)
             --> from activities that constitute
                        the entity's ongoing major or central operations.

     Accrual Accounting
             --> Revenues and gains are recognized first
                          and cash is received later.

             --> Expenses and losses are recognized first
                          and cash is paid later.

     Examples of Accruals
             a.  sale (or purchase) of goods on account

             b.  interest, rent, wages, salaries, tax expenses not yet paid
                        (Expenses are recognized first
                              and cash is paid later. )

             c.  interest and rent income not yet received
                        (Revenues are recognized first
                              and cash is received later.)

             --> Cash is received first and revenues
                          and gains are recognized later.

             --> Cash is paid first and expenses
                          and losses are recognized later.

     Examples of Deferrals
             --> prepaid insurance
                        (Cash is paid first, expense is recognized later.)

             --> unearned subscriptions 
                        (Cash is received first, revenue is recognized later.)

             --> the process of
                   converting noncash resources to cash.

             --> the process of
                   formally recording an item in the financial statements.

     Matching Principle
             --> Revenues and related expenses
                   require recognition at the same time.

             --> Expenses are recognized in the period
                   in which related revenues are recognized.

             --> Expenses due to the use of assets
                   that provide benefits over several periods

             --> Examples:  Depreciation and amortization
Other Statements of Financial Accounting Concepts (SFAC)


Issue Date
1 Objectives of Financial Reporting by Business Enterprises November 1978
2 Qualitative Characteristics of Accounting Information May 1980
3 Superseded by SFAC No. 6  
4 Objectives of Financial Reporting by Nonbusiness Organizations December 1980
5 Recognition and Measurement in Financial Statements of Business Enterprises December 1984
6 Elements of Financial Statements December 1985
7 Using Cash Flow Information and Present Value in Accounting Measurements February 2000

U.S. GAAP Codification
International Financial Reporting Standards (IFRS)
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements

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