Financial Accounting: Property, Plant and Equipment and Year-End Adjustments

A set of vocabulary flashcards covering the definitions of PPE, current assets, transactions versus subsequent events, and the principles of year-end adjustments based on financial accounting standards.

Economic benefits

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

Land and Buildings

PPE assets that provide premises for operations, generate rental income, may appreciate in value, and support the production or sale of goods and services.

Furniture and Fittings

PPE assets that provide a functional working environment, improve productivity, enhance customer experience, and support day-to-day operations.

Motor Vehicles

PPE assets used to transport goods, employees, or customers, facilitate delivery, and enable personnel to reach customers to generate revenue.

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 that may affect the value, condition, or future economic benefits of the asset.

Capitalisation

The process of adding the cost of a subsequent event to the carrying amount of an asset because it increases the asset's future economic benefits.

Current Assets

Assets that are expected to be realised, sold, or consumed within one year or the normal operating cycle.

Trade Inventory

A current asset where the initial transaction is the purchase of goods and subsequent events include selling inventory or writing it down to net realisable value.

Net Realisable Value (NRV)

The estimated selling price of inventory; assets are written down if this value falls below the original cost.

Trade Receivables

A current asset involving credit sales; subsequent events include cash collection, writing off bad debts, or recognising expected credit losses.

Cash and Cash Equivalents

Current assets involving cash receipts; subsequent events include paying expenses, paying liabilities, or investing in short-term deposits like a 90-day fixed deposit.

Accounting Equation

The foundational formula: $\text{Assets} = \text{Equity} + \text{Liabilities}$.

Year-End Adjustments

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

Accrual Basis of Accounting

An accounting method that requires reporting income and expenses when they occur, rather than when cash is exchanged.

Matching Principle

An accounting principle where expenses are recognised in the same period as the revenue they helped to generate.

Prepaid Expense

An adjustment made when an expense (like insurance) is paid in advance but part of it relates to the next financial year.

Unearned Income

An adjustment for income (like rent) received in advance that relates to a future accounting period.

Accrued Expense

An adjustment for expenses incurred (like electricity used) but for which a bill has not yet been received or paid.