Chapter 9 terms
declining balance
an accelerated depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense of over the useful life of the asset
lease
an agreement allowing one party to use another party's asset
operating lease
an agreement allowing the lessee to use the lessor's property and account for the lease as a rental. An operating lease is considered a revenue expenditure and is expensed, not capitalized
capitale expenditure
an expenditure which increases the company's investment in plant assets which are expected to be used to earn revenue over more than one time period
revenue expenditure
an expenditure which is immediately matched with revenue of the period - an expense
plant assets
assets expected to be used to earn revenue over more than one time period and not intended for sale to customers
land
can be a tangible plant asset, an investment or inventory. Never depreciates
additions and improvements
costs incurred to increase the operating efficiency, productive capacity or expected useful life of a plant asset and are treated as capital expenditures
ordinary repairs
costs that do not increase operating efficiency, productive capacity or expected useful life of a plant asset. They are treated as revenue expenditures
research and development costs
expenditures by a company that may lead to patents, copyrights, etc. Most of these are treated as revenue expenditures and expenses, not capitalized
intangible plant assets
have no physical substance. examples include copyrights, trademarks, trade names, patents, goodwill, franchise, etc. cost allocation of intangible assets is called amortization
tangible plant assets
have physical substance. Examples include cars, trucks, buildings, computers, etc. cost allocation of tangible plant assets is called depreciation
depreciable cost
the cost of a plant asset less its salvage value
book value
the cost of an asset less its accumulated depreciation
depreciation
the process of allocating to expense the cost of tangible plant asset over its useful life in a rational and systematic manner
capitalize
the term used to say that a transaction is recorded in the books as an asset not as an expense
accumulated depreciation
a contra asset account which shows the total amount of depreciation expense taken on a plant asset since it was acquired.
capital lease
a long-term agreement allowing the lessee to use the lessor's property. A capital lease is considered a capital expenditure and is capitalized and amortized
accelerated-depreciation
a method in which periodic depreciation is higher in early years of an asset's useful life
straight-line depreciation
a method in which periodic depreciation is the same for each year of the tangible plant asset's useful life. This method is called amortization if used to allocate cost of an intangible asset
units of activity depreciation
a method in which the useful life of the asset is expressed in terms of the total units of production or use expected from the assets. This method is called depletion if being used to allocate costs of natural resources