FRF for SMEs--Basic Financial Statement Classifications

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On Monday, June 10, 2013 the AICPA released the FRF for SMEs.  As I have been discussing in previous blogs, the content of this special purpose framework is a combination of concepts from other reporting frameworks that offer the opportunity for small-to-medium-sized entities to more efficiently prepare its financial statements and footnotes.  I have begun to discuss basic concepts of the framework and will summarize the elements of this new framework in the weeks ahead.  Detailed explanations of these elements are available in the AICPA’s publication for this framework. Today I’ll review definitions of the basic financial statement classifications of the framework, which are similar to most other financial reporting frameworks.  Here is some “accounting 101.”


Assets represent economic resources of an entity resulting from past transactions or events. Future economic benefits are expected from these resources.

The attributes of assets are:

  • The benefits of these resources contribute to future cash flows.
  • The entity controls the use of the benefit.
  • The recorded benefits currently exist.

Economic benefits may arise from expenditures or resources donated to an entity. Some expenditures, of course, may have only current benefit and would be recorded as expenses.


Liabilities represent obligations that also arise from past transac­tions or events. They may be settled by providing access to assets, services or future benefits.

The attributes of liabilities are:

  • They require settlement in the future.
  • The entity is responsible for the settlement.
  • The obligation currently exists.


Equity represents the ownership interests in the net assets of an entity. The equity classification may include capital stock, additional paid-in capital, and retained earnings (or other capital accounts of owners).


Revenues provide the economic resources of an entity that normally come from the sale of products, the provision of services, or other passive sources.


Expenses use the economic resources in the normal operating activities of an entity.


Gains represent resources from all sources other than revenue or equity transactions.


Losses represent equity reductions other than expense or equity distribution transactions.

In September of 2013, I will present four, two-hour webcasts on the FRF for SMEs.  You can register for the webcasts by clicking on the appropriate box on the left side of my home page at


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