Also referred to as the useful life. This differs from the physical life of an asset. For example, a computer may have a physical life of 50 years, but its economic or useful life might be five years.
Also referred to as the useful life. This differs from the physical life of an asset. For example, a computer may have a physical life of 50 years, but its economic or useful life might be five years.
Does a company have to use the IRS years of useful life for depreciation? For the company’s financial statements, the economic life of the asset should be used—not the years of useful life required for income tax...
asset’s value at the end of its useful life is used in some of the depreciation methods. This is sometimes referred to as the asset’s residual value. Mark as wrong Mark as right economic life (or) useful life This...
An accounting principle/guideline that allows the accountant to keep the sole proprietor’s business transactions separate from the owner’s personal transactions even though a sole proprietorship is not...
The optimum purchase (or production) quantity which minimizes the combined total cost of carrying inventory and processing additional purchase orders (or production setups).
Life insurance with a cash value (as opposed to term insurance, which does not have a cash value).
The length of time that an asset would last. Instead of the physical life, accountants focus on the useful life. For example, a computer’s physical life is perhaps 50 years. However, its useful life is likely to be...
This is the period of time that it will be economically feasible to use an asset. Useful life is used in computing depreciation on an asset, instead of using the physical life. For example, a computer might physically...
What is an asset's useful life? Definition of Asset’s Useful Life An asset’s useful life is the estimated period of time (or total amount of activity) that a long-lived asset will be economically feasible for...
value. Assume that a company incurs a cost of $30,000 in June to add a hydraulic lift to its delivery truck that had no lift. The remaining useful life of the truck and the lift is 5 years. The cost of $30,000 should be...
A formula that calculates the optimum quantity to be purchased (or produced) so as to minimize the combined total cost of carrying inventory and processing additional purchase orders (or production setups). The formula...
The systematic allocation of the cost of an asset from the balance sheet to Depreciation Expense on the income statement over the useful life of the asset. (The depreciation journal entry includes a debit to Depreciation...
that best matches the descriptions listed as items 6 - 16: Each principle or term can be used several times. conservatism cost economic entity full disclosure going concern industry practices matching materiality...
by reading our Accounting Principles (Explanation). 1. The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline? Cost Wrong. The cost...
be only half of its cost. 3. Depreciation Expense reflects an allocation of an asset's original cost rather than an allocation based on the economic value that is being consumed. True Right! This is true because of...
What is EOQ? Definition of EOQ EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of an item to be purchased at one time in order to minimize the combined annual costs of...
have increased in value, the depreciation and cost of goods sold reported on the income statement will be less than the value of the economic capacity being used up. As a result, the reported net income will be greater...
See economic order quantity (EOQ) model.
The estimated number of days between ordering and receiving the units being ordered The number of units of safety stock The reorder point indicates when to place an order. The economic order quantity indicates the...
The cost to hold an item in inventory. Includes the cost of capital tied up in inventory, the cost of space and insurance, and the cost of items becoming obsolete while being held in inventory. This is an important...
to operate its respective business and each will issue its own financial statements. However, the investors and potential investors in NEP will find it helpful to see the results of operations and the financial position...
plant built for a cost of $1 billion will cost $10 billion at the end of a useful life of 25 years. By computing straight-line depreciation based on the historical cost, the income statement will report depreciation...
A simple form of business where there is one owner. Legally the owner and the sole proprietorship are the same. However, for accounting purposes the economic entity assumption results in the sole proprietorship’s...
depreciation is the declining-balance method often used for U.S. income tax depreciation.) Compared to the straight-line depreciation method, the sum-of-the-years’-digits method results in greater depreciation in the...
income tax returns. The reason is that the financial statement depreciation is based on the matching principle of accounting while the income tax depreciation is based on income tax regulations and tax strategies....
statement (regardless of when the company pays the commissions). If a cause-and-effect relationship does not exist between a company’s revenues and its costs, and there is no future economic benefit which can be...
will be expensed in early years of the asset’s life and therefore less in the later years (compared to equal amounts using straight-line depreciation). Use of Double-Declining-Balance on Financial Statements...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land,...
Financial statements that reflect the total economic entity. For example, on a consolidated income statement a corporation having several subsidiaries would report the total of all of its companies’ sales that were...
This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. Plant assets used in the business are reported under the heading of property, plant, and __________. 2....
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
of the equipment’s useful life of 10 years. Jelco uses the straight-line depreciation method for its financial statements and Jelco’s accounting years end on December 31. What amounts will Jelco report for...
Repairs that do not improve an asset or extend the asset’s life. These repairs are charged to Repairs Expense or Maintenance Expense when incurred. Major repairs such as a complete engine overhaul that extends the...
A major repair such as an engine overhaul, which will extend the useful life of the asset. The amount should be recorded in the asset account and then depreciated over the remaining life of the asset.
An example is the major overhaul of a truck’s engine that will extend the useful life of the truck. This expenditure is recorded on the balance sheet in an asset (or in a contra asset) account and then depreciated...
of depreciation over the asset’s useful life is the asset’s cost minus an estimated salvage value at the end of the useful life. The result of this calculation is sometimes referred to as the asset’s depreciable...
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