What entry is made when selling a fixed asset? Defining the Entries When Selling a Fixed Asset When a fixed asset or plant asset is sold, there are several things that must take place: The fixed asset’s depreciation...
What entry is made when selling a fixed asset? Defining the Entries When Selling a Fixed Asset When a fixed asset or plant asset is sold, there are several things that must take place: The fixed asset’s depreciation...
How can I determine the inventory methods used by other companies in my industry? Definition of Inventory Methods Inventory methods refers to the order or manner in which a company moves its actual costs out of the...
What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
methods: Indirect method (almost always used) Direct method (rarely used) The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating...
, the company purchases a new machine for $300,000 that is expected to have no salvage value at the end of its 10-year useful life. If the company uses the straight-line method of depreciation, the depreciation expense...
With regard to depreciation, what does the term mid-month convention mean? Definition of Mid-Month Convention In depreciation, the mid-month convention means that an asset placed into service anytime during a given...
Is the depreciation of delivery trucks a period cost or is it manufacturing overhead? The depreciation on the trucks used to deliver products to customers is a period cost. The depreciation on delivery trucks will be...
How are fully depreciated assets reported on the balance sheet? Definition of Fully Depreciated Asset A fully depreciated asset is a depreciable asset for which no additional depreciation expense will be recorded. In...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Why isn't land depreciated? Definition of Land The land that is used in a business (as opposed to land that is an investment, or land that will be sold by a real estate developer) is a tangible asset that is assumed to...
What is a fully depreciated asset? Definition of Fully Depreciated Asset A fully depreciated asset is a plant asset or fixed asset where the asset’s book value is equal to its estimated salvage value. In other words,...
What is the entry to remove equipment that is sold before it is fully depreciated? Entries To Record a Sale of Equipment When equipment that is used in a business is disposed of (sold) for cash before it is fully...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
Is the direct method still used in the statement of cash flows? The direct method is one of two methods allowed for preparing the statement of cash flows (or cash flow statement). The direct method is recommended by the...
, the company’s financial statements can use straight-line depreciation over the 10 years while the income tax return is using an accelerated method of depreciation over the 7 years.) The difference in each year’s...
of a noncash expense is depreciation. To illustrate, let’s assume that a company purchased equipment two years ago for a cash payment of $200,000. The company determined that the equipment had a useful life of 10...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
balance in a contra asset account will violate the cost principle.) Examples of Contra Asset Accounts The most common contra asset account is Accumulated Depreciation. Accumulated Depreciation is associated with...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
Can a fully depreciated asset be revalued? A fully depreciated asset cannot be revalued because of accounting’s cost principle. Definition of a Fully Depreciated Asset A fully depreciated asset is one that has...
What is the accounting treatment for an asset that is fully depreciated, but continues to be used in a business? An asset that is fully depreciated and continues to be used in the business will be reported on the balance...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
the following information: December 31 (and the year) Depreciation Expense $10,000 (in the debit column) Accumulated Depreciation $10,000 (in the credit column) A short explanation such as “Depreciation for the...
Cost on Income Statement Let’s assume that a company buys equipment for $100,000 and it is expected to be used for 10 years with no salvage value at the end of its useful life. Using the straight-line method of...
the reasons why a company can have an accounting net loss but have a positive net cash inflow. Example of Net Loss But a Positive Cash Flow A common adjustment to a company’s accrual accounting net income or net loss...
What are phantom profits? The terms phantom profits or illusory profits are often used in the context of inventory (but can also pertain to depreciation) during periods of rising costs. The amount of phantom or illusory...
be reflected in the company’s general ledger accounts: Any unrecorded depreciation up until the time of the sale must be recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation The...
Buildings is a noncurrent or long-term asset account which shows the cost of a building (excluding the cost of the land). Buildings will be depreciated over their useful lives by debiting the income statement account...
Costs Three methods for separating mixed costs into the fixed portion and the variable portion are: Preparing a scattergraph Using the high-low method Using regression analysis It is important to prepare the...
is considered to be risky, the rate used to discount its cash flows should be __________ the rate used to discount the cash flows of a project considered to be more safe. Select... higher than lower than the same as 14....
A long term asset account containing the cost of delivery equipment acquired by a company and used in its business. The account will appear on the balance sheet under the heading of Property, Plant and Equipment. There...
Equipment is a noncurrent or long-term asset account which reports the cost of the equipment. Equipment will be depreciated over its useful life by debiting the income statement account Depreciation Expense and crediting...
A long-term asset which indicates the cost of the constructed improvements to land, such as driveways, walkways, lighting, and parking lots. Land Improvements will be depreciated over their useful life by debiting the...
How do you calculate an asset's salvage value? Definition of Asset Salvage Value In accounting, an asset’s salvage value is the estimated amount that a company will receive at the end of a plant asset’s useful...
If the fully depreciated car continues to be used, there will be no further depreciation. The company cannot depreciate more than the car’s cost. If the fully depreciated car is sold or scrapped, the following...
computed using replacement costs. This smaller amount of costs charged to the income statement means reporting greater profit. The difference in the profit is said to be illusory. In the case of plant assets used during...
What is the difference between reserve and allowance? More than 60 years ago, accountants in the U.S. used Reserve for Bad Debts as the title of the contra account associated with Accounts Receivable or Loans Receivable....
of Indirect Costs For example, the depreciation of a company’s manufacturing building is an indirect cost of the following: The manufacturing departments within the building The products that are manufactured in the...
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