Principles of Accounting - Fixed Assets

Accumulated Depreciation

(contra-asset account) depreciation expense that is recognized to date. Its balance is subtracted from fixed asset account to get the Net Book Value of the asset

Goodwill

(in accounting) an intangible asset valued according to the advantage or reputation a business has acquired (over and above its tangible assets). Arises when a business is valued at or sold for more than the balance sheet value of its assets.

Matching Principle

A GAAP principle that requires matching expenses incurred in an accounting period with the revenue earned in the same period

Debit

A bookkeeping entry on the left side of an account, recording the creation of or addition to an asset or an expense, or the reduction or elimination of a liability or item of equity or revenue.

Depreciation (common usage)

A decrease in value due to physical deterioration, functional or economic obsolescence.

Trademark

A distinctive mark, motto, device, or emblem that a manufacturer stamps, prints, or otherwise affixes to the goods it produces so that they may be identified on the market and their origins made known. Once a trademark is established (under the common law or through registration), the owner is entitled to its exclusive use.

Patent

A government grant that gives an inventor the exclusive right to make or sell his or her invention for a term of years

Depreciation

A measure of how much a tangible asset (such as plant or equipment) has been "used up" or consumed

Straight Line Depreciation

A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement.

Expenditure

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

Amortization

Accounting procedure that gradually reduces the cost value of a limited life or intangible asset through periodic charges to income. For fixed assets the terms used is DEPRECIATION, and for wasting assets (natural resources) it is depletion, both terms meaning essentially the same thing as amortization.

Revenue Expenditure

Additional costs of plant assets that do not materially increase the asset's life or productive capabilities; expenditures that are immediately charges against revenues as an expense. Motor tune ups and oil changes, the painting of buildings and the replacing of worn-out gears on machinery.

Revenue

Amounts earned by delivering goods or services to customers. Revenues increase capital.

Credit

An entry on the right side of an account.

Copyright

An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.

Fixed Assets

Assets that are relatively permanent, such as land, buildings, and equipment

Expense

Assets used up or services consumed in the process of generating revenues.

Property, Plant and Equipment

Assets with relatively long useful lives that companies use in operating the business

Depletion

Process of allocating the cost of natural resources to periods when they are consumed and sold

Assets

Economic resources (things of value) owned by a firm.

Adjusting Journal Entry

Entries made in the general journal to record revenues that have been earned but not recorded and expenses that have been incurred but not recorded

Capital Expenditure

Expenditure that increase the capacity or efficiency of an asset or extend its useful life. They are debited to an asset account.

Book Value (or, Net Book Value)

The cost of a fixed asset less accumulated depreciation.

Accrual Basis Accounting

Transactions are recorded in the periods in which the events occur. Revenues are recognized when earned, rather then when cash is received. Expenses are recognized when incurred, rather than when paid.

Accelerated Depreciation

method that depreciates fixed assets more during the earlier years of their useful life and less during the later years - generates larger deductions (lower taxable income) during the early yaers and smaller deductions (higher taxable income) during the later years

Trade-in allowance

price reduction given for used products when similar new products are bought

Depreciation expense

that portion of the original cost of a fixed asset that is assigned as an expense to the reporting period expected to benefit from its use.

Residual Value

the estimated amount to be recovered by the company at the end of the asset's estimated useful life

Gain on sale of assets

the excess of the selling price over the asset's book value

Intangible Assets

those assets that cannot be touched or grasped (examples include patents, copyrights and goodwill).