The amount of an asset’s cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000 but is expected to have a salvage value of $3,000 then the...
The amount of an asset’s cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000 but is expected to have a salvage value of $3,000 then the...
A product that emerges with other products in a common process; however, this product does not have a significant value. (If it had significant value, it would be a joint product.)
The reduction of an asset’s carrying amount. For example, we often reduce or write down inventory from its cost to its net realizable value when the net realizable value is lower.
A process which discounts future cash flows to the present in order to reflect the time value of money. Examples of the discounted cash flow model are net present value and internal rate of return.
Life insurance with a cash value (as opposed to term insurance, which does not have a cash value).
The products with significant value that emerge at a split-off point in a process. When a joint product has little value it is referred to as a by-product.
How much do you depreciate an asset and when? Definition of How and When to Depreciate an Asset Depreciation begins when you place an asset in service and it ends when you take an asset out of service or when you have...
on a project. There are two weaknesses with the payback method: 1) the time value of money is not considered, and 2) the cash flows occurring after the cash is paid back is ignored. Accounting rate of return or return...
The accounting guideline requiring amounts in the accounts and on the financial statements to be the actual cost rather than the current value. Accountants can show an amount less than cost due to conservatism, but...
The result of two or more amounts being combined. For example, net sales is equal to gross sales minus sales returns, sales allowances, and sales discounts. The net realizable value of accounts receivable is the...
See Statement of Financial Accounting Standard No. 121. Under this standard if the undiscounted future cash flows from the asset (including sale amount) are less than its carrying amount, a loss is recognized. The amount...
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...
(or to its estimated salvage value). Example of Reporting a Fully Depreciated Asset on the Balance Sheet A fully depreciated asset that continues to be used is reported at its cost in the Property, Plant and Equipment...
in an investment having a net present value of zero. The internal rate of return is one of the tools in capital budgeting that considers both of the following: The time value of money All of the cash payments and cash...
What is a toxic asset? I would define a toxic asset as an investment whose value has dropped significantly and there is no market in which to sell the asset. To illustrate, let’s assume that at the peak of the real...
of depreciation taken on the plant assets since they were put into service. accumulated depreciation This contra asset account reports the amount of depreciation taken on the plant assets since they were put into...
for use as the site for the new office building, the entire $160,000 should be recorded in the Land account. 2. On July 1 of the current year, Jelco began using new equipment in its warehouse. The equipment had a cost...
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...
is not adjusted for inflation or for changes in the current value or replacement value of the asset. For buildings, equipment, fixtures, vehicles, and other long-lived tangible assets other than land, the asset’s...
of $2,500 every six months until the bond matures. If the current market interest rate for this type of bond is 6%, the current market value of the 5% bond will be less than $100,000. Assume that the market value for...
(such as years). Instead, the depreciation is expressed and calculated based on the asset’s usage. Under the units-of-activity method of depreciation, the asset’s cost (less any salvage value) is allocated to the...
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...
, the total market value of the shares would have been $5 million. After the 2-for-1 stock split, the corporation’s market value will also be $5 million (200,000 shares X $25 per share). This is the same for each...
with the depreciation expense on the income tax return. Select... True False 8. The balance in the account Accumulated Depreciation should be approximately the same as the balance in the account Depreciation Expense....
It is common for a small quantity to account for most of the value. Examples: 20% of the people may have 80% of the wealth; 20% of the members do 80% of the work; 20% of the items in inventory account for 80% of the...
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...
Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the...
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...
This is a contra long-term asset account which is credited for the depreciation associated with Buildings. Since it is a balance sheet account, the accumulated depreciation account balance does not close at the end of...
A depreciation technique where a constant percentage (such as 200%, 150%, or 125%) is applied to the book value of an asset. (As an asset is depreciated its book value declines.) This technique results in greater...
This account is a contra long-term asset account which is credited for the depreciation associated with land improvements. As an asset account, the accumulated depreciation account balance does not close at the end of...
The ABC inventory system is different from activity-based costing. The ABC inventory system is used in order to focus on the most important items in inventory. Usually a relatively few items will account for a very...
An asset account which is expected to have a credit balance (which is contrary to the normal debit balance of an asset account). The contra asset account is related to another asset account. For example, the contra asset...
Should a company focus on cash flows or accounting profits when making a capital expenditure decision? Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The...
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,...
What is the difference between a note payable and a bond payable? Definition of Note Payable and Bond Payable For accounting purposes, a note payable and a bond payable have the following similarities: Formal written...
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...
date. Examples include bonds payable and the mortgage loan payable. Mark as wrong Mark as right cost principle (or) historical cost principle This basic underlying principle requires each transaction to be recorded at...
The amount of cash received is debited to the company’s Cash account If the cash received is greater than the asset’s book value, a Gain on Sale of a Plant Asset is recorded. If the cash received is less than the...
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