Financial Accounting: PPE, Current Assets, and Year-End Adjustments

Vocabulary and key concepts from Chapter 7 Lecturer notes covering Property, Plant and Equipment, Current Assets, Transactions, and Year-End Adjustments.

Economic benefits

The future benefits that an asset is expected to provide to an entity through its use or disposal.

Land and Buildings (Economic Benefits)

Provides premises for operations, generates rental income, may appreciate in value, and supports production or sale of goods to earn revenue.

Furniture and Fittings (Economic Benefits)

Provides a functional working environment, improves productivity, enhances customer experience, and supports day-to-day operations.

Motor Vehicles (Economic Benefits)

Efficiently transports goods, employees, or customers, facilitates delivery, reduces costs, and enables personnel to reach customers.

Transaction

An economic event that occurs during the accounting period and is recorded because it affects the financial position or performance of the business.

Subsequent Event

An event that occurs after the initial transaction has been recorded, potentially affecting the value, condition, or future economic benefits of the asset.

Capitalised Expenditure

Costs added to the carrying amount of an asset because they increase future economic benefits, such as adding a floor to a building for $R800\,000$.

Expensed Cost

Costs recorded in profit or loss (such as routine servicing or repairs) because they only maintain an asset's existing level of performance.

Current Assets

Assets expected to be realised, sold, or consumed within $1$ year or the normal operating cycle.

Trade Inventory

Goods purchased for resale; measured at the lower of cost or net realisable value (NRV).

Net Realisable Value (NRV)

The estimated selling price of inventory; if it falls below cost, the inventory must be written down.

Trade Receivables

Amounts owed to the business by customers following the sale of goods on credit.

Irrecoverable Debt (Bad Debt)

A debt written off when a customer becomes insolvent and cannot pay the amount owing.

Cash and Cash Equivalents

Cash received from customers/owners or short-term investments such as a $90$-day fixed deposit.

Accounting Equation

$$\text{Assets} = \text{Equity} + \text{Liabilities}$$

Year-End Adjustments

Accounting entries made at the end of the financial year to ensure assets, liabilities, income, and expenses are reported at their correct amounts.

Accrual Basis of Accounting

A principle where transactions are recorded in the periods in which they occur, regardless of when cash is exchanged.

Matching Principle

The concept that expenses must be recognised in the same period as the revenue they helped to generate.

Depreciation

A year-end adjustment recording the consumption of economic benefits of an asset (e.g., a vehicle) over time.

Prepaid Expense

An adjustment made when an expense (like insurance) has been paid but the benefits relate to the next financial year.

Unearned Income

Income (like rent) received in advance where part of the payment relates to the following financial year.

Accrued Expense

An adjustment for expenses incurred (like electricity) where the bill has not yet been received or paid by year-end.