Financial Accounting Chp. 10

Accelerated method

A method of depreciation that allocates relatively large amounts of the depreciable cost of an asset to earlier years and reduced amounts to later years.

Straight-line method

A method of depreciation that assumes depreciation depends only on the passage of time and that allocates an equal amount of depreciation to each accounting period in an asset's useful life.

Production method

A method of depreciation that assumes depreciation is solely the result of use and that allocates depreciation based on the units of output or use during each period of an asset's useful life.

Expenditure

A payment or an obligation to make future payment for an asset or a service.

Double-declining-balance method

An accelerated method of depreciation in which a fixed rate equal to twice the straight-line percentage is applied to the carrying value (the declining balance) of a tangible long-lived asset.

Declining-balance method

An accelerated method of depreciation in which depreciation is computed by applying a fixed rate to the carrying value (the declining balance) of a tangible long-lived asset.

Capital expenditure

An expenditure for the purchase or expansion of a long-term asset, recorded in an asset account.

Revenue expenditure

An expenditure related to repair, maintenance, and operation of a long-term asset, recorded by a debit to an expense account.

Long-term assets

Assets that have a useful life of more than one year, are acquired for use in the operation of a business, and are not intended for resale. Less commonly called fixed assets.

Asset impairment

Loss of revenue-generating potential of a long-lived asset before the end of its useful life; the difference between an asset's carrying value and its fair value, as measured by the present value of the expected cash flows.

Physical deterioration

Limitations on the useful life of a depreciable asset reesulting from use and from exposure to the elements.

Natural resources

Long-term assets purchased for the economic value that can be taken from the land and used up.

Tangible assets

Long-term assets that have physical substance.

Intangible assets

Long-term assets with no physical substance whose value is based on rights or advantages accruing to the owner.

Depreciable cost

The cost of an asset less its residual value.

Residual value

The estimated net scrap, salvage, or trade-in value of a tangible asset at the estimated date of disposal. Also called salvage value or disposal value.

Depletion

The exhaustion of a natural resource through mining, cutting, pumping, or other extraction, and the way in which the cost is allocated.

Depreciation

The periodic allocation of the cost of a tangible long-lived asset (other than land and natural resources) over its estimated useful life.

Amortization

The periodic allocation of the cost of an intangible asset to the periods it benefits.

Obsolescence

The process of becoming out of date, which is a factor in the limited useful life of tangible assets.

Estimated useful life

The total number of service units expected from a long-term asset.

Carrying value

The unexpired part of the cost of an asset, not its market value. Also called book value.