ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - Financial Instruments - Definition - Notes ^{2 / 10}

b) Define Financial Instruments in Terms of Financial Assets and Financial Liabilities

Definition:

A financial instrument is:

“Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.”
(IAS 32 – Financial Instruments: Presentation)

Financial Assets:

These represent a right to receive cash or another financial asset.

Examples:

• Cash
• Trade receivables
• Loans receivable
• Equity investments (e.g. shares)
• Derivative assets (e.g. forwards, futures)

Financial Liabilities:

These represent an obligation to deliver cash or another financial asset.

Examples:

• Trade payables
• Loans payable
• Bonds issued
• Derivative liabilities