Accounting: Assets, Depreciation, and Inventory Classification

Vocabulary flashcards covering the definition and classification of assets, tangible and intangible assets, fixed assets, straight-line depreciation concepts, and types of current assets and inventory.

Asset (IASB Framework)

A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Current Assets (Short-Term Assets)

Assets intended to be held in the business for less than one year that are highly liquid and expected to be realized or converted to cash within one year.

Non-Current Assets (Long-Term Assets)

Long-term resources intended to be held in the business for more than one year (or beyond the normal operating cycle) to support long-term operations and growth.

Tangible Assets

Assets that have a physical existence and are capable of being touched, felt, and seen, such as plant, property and equipment, buildings, cash, and inventory.

Intangible Assets

Identifiable non-monetary assets without physical substance that cannot be touched, felt, or seen, such as patents, licenses, goodwill, trade names, brands, and copyrights.

Fixed Assets (PPE)

Tangible non-current assets (Property, Plant, and Equipment) used in operations to produce goods or services and not intended for resale.

Investments

A broad term referring to the allocation of capital (money, resources) with the expectation of generating future economic benefits, covering both financial and capital investments.

Financial Investments

The allocation of funds into financial instruments (such as shares, bonds, or deposits) with the aim of earning income via interest, dividends, or capital appreciation.

Capital Expenditures (CapEx)

Long-term investments made by a company into tangible or intangible assets, representing expenses on acquiring, constructing, or upgrading productive capacity and long-term assets.

Bonds

Debt securities issued by a government, municipality, or corporation representing a loan made by an investor to the issuer, with promises to repay principal at maturity and pay periodic coupon interest.

Shares (Stocks/Equity)

Securities representing ownership in a company that grant rights such as voting in general meetings and receiving dividends.

Long-Term Shares

Shares that an investor or company intends to hold for more than one year, typically acquired for strategic purposes such as maintaining control or influence rather than short-term trading.

Deferred Tax Assets

Future tax benefits a company can use to reduce its taxable income, typically arising when taxes are paid in advance or when carried-forward losses offset future profits.

Depreciation

An accounting tool used to spread the cost of a tangible fixed asset over its useful life, reflecting a physical item's decline or loss of value over time due to wear, use, or obsolescence.

Straight-Line Depreciation Expense Formula

$$\text{Straight-line depreciation expense} = \frac{\text{Cost} - \text{Salvage value}}{\text{Useful life}}$$

Fixed Asset Cost

The total purchase price of a fixed asset, including all costs necessary to acquire it and prepare it for use, such as transport and installation.

Useful Life

The period of time or number of units produced that a company expects to use an asset, representing the period over which depreciation is charged.

Depreciation Expense

The portion of a fixed asset's cost that is allocated and expensed during each accounting period over its useful life.

Accumulated Depreciation

The total cumulative amount of depreciation recorded against a fixed asset since it was acquired, increasing each period and reducing the asset's book value.

Book Value (Carrying Amount)

The value of an asset recorded on the balance sheet, calculated as: $\text{Book Value} = \text{Fixed Asset Cost} - \text{Accumulated Depreciation}$

Salvage Value (Residual Value)

The estimated value of a fixed asset at the end of its useful life that a company expects to receive when selling or disposing of the asset.

Amortization

The allocation of the cost of an intangible asset over its useful life, applied to non-physical assets such as patents, copyrights, licenses, and goodwill.

Cash

Money that is immediately available for use and the most liquid asset on the balance sheet, consisting of cash in hand and cash in bank.

Accounts Receivable (AR)

Money owed to a business by customers for goods or services delivered but not yet paid.

Prepaid Expenses

Payments made in advance for goods or services to be received in the future, such as prepaid rent, insurance premiums, subscriptions, or utilities.

Short-Term Investments

Financial assets, such as marketable securities (stocks and bonds held for trading), that a company intends to convert into cash within one year or one operating cycle.

Inventory

A category of short-term (current) assets owned by a business for the purpose of selling or using in the manufacturing of other goods.

Finished Goods for Sale

Products that are completely manufactured and ready to be sold to customers, such as vehicles in a showroom or packaged food in a warehouse.

Work in Progress (WIP)

Partially completed products that are still in the production process, such as a half-assembled computer on an assembly line.

Raw Materials

Basic input materials used in the production process to create finished goods, such as steel for car manufacturing or flour for baking bread.

Consumables

Items used in the production process that do not become part of the finished product but are necessary for operations, such as machinery lubricants, cleaning supplies, and office supplies.