Financial Accounting Chapter 7
return on assets
net income divided by average total assets; measures the amount of net income generate for each dollar invested in assets
profit margin
net income/net sales; indicates the earnings per dollar of sales
amortization
Allocating the cost of an intangible asset over its service life
accumulated depreciation
A contra asset account representing the total depreciation taken to date.
accelerated depreciation method
Allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in later years
activity-based method
Allocates an asset's cost based on its use
asset turnover
Net Sales / Average Total Assets :measures sales per dollar of assets invested
trademark
a word, slogan, or symbol that distinctively identifies a company, product or service.
straight-line method
allocates an equal amount of depreciation to each year of the asset's service life
depreciation
allocating the cost of a tangible asset over its service life
declining balance method
an accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years
Copyright
an exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book or computer software
patent
an exclusive right to manufacture a product or to use a process
materiality
an item large enough to influence an investor's or creditors decision
book value
equal to the original cost of the asset minus the current balances in accumulated depreciation
franchise
local outlets that pay for the exclusive right to use the franchisor company's name and to sell its products within a specified geographical area
repairs and maintenance
expenses that maintain a given level of benefits in the period incurred
service life
how long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life
impairment
occurs when the future cash flows (future benefits) generated for a long term asset fall below its book value (cost- accumulated depreciation)
capitalize
recording an expenditure as an asset
capitalized interest
refers to interest costs recorded as assets rather than interest expense
residual value
the amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value
improvement
the cost replacing a major component of an asset
depletion
the process of recording expense for natural resources
goodwill
the purchase price of a company less the fair value of the net assets acquired