Accounting Principles Chapter 7
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 creditor's decision.
Addition
Occurs when a new major component is added to an existing asset.
Impairment
Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).
Depreciation
Allocating the cost of a tangible asset over its service life.
Amortization
Allocating the cost of an intangible 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.
Return on Assets (ROA)
= Net income / average total assets Measures the amount of net income generated for each dollar invested in assets.
Profit Margin
= Net income / net sales Indicates the earnings per dollar of sales
Asset Turnover
= Net sales / average total assets Measures the sales per dollar of assets turned over
Book Value
= Original cost of asset - current balance in accumulated depreciation
Accumulated Depreciation
A contra-asset account representing the total depreciation taken to date.
Trademark
A work, slogan, or symbol that distinctively identifies a company, product, or service.
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.
Straight-Line Method
Allocates an equal amount of depreciation to each year of the asset's service life.
Natural Resources
Assets like oil, natural gas, and timber that we can physically use up or deplete.
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 fro the asset before disposing of it; also referred to as useful life.
Land Improvements
Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to 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.
Big Bath
Recording all losses in one year to make a bad year even worse.
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 of 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.
