Page 30 - ic92 actuarial

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The reporting follows the simple equation :

Assets = Liabilities + Owners' Equity.

94. When liabilities exceed assets, the value of the owners'
equity is negative and the firm is insolvent. Another way
to write the equation of financial position is then given
by :

Owners' Equity = Assets - Liabilities

95. The income statement measures changes in owners'
equity during a stated period of time. Owners' equity
can be subdivided into the capital contributed by the
owners and any retained earnings of the firm past
periods. Thus,

Owners' Equity = Contributed Capital +Retained
Earnings.

96. The income statement measures the firm's performance
in the stated period as follows :

Income = Revenue -Expense

97. Revenue measures the inflow of assets from providing
products or services. Expense measures the outflow of
assets that are consumed in providing the firm's products
or services.

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