Ch6

Revenue expenditures

Costs incurred for repair or maintenance of long-term operational assets; recorded as expenses and subtracted from revenue in the accounting period in which incurred.

Goodwill

Added value of a successful business that is attributable to factors—reputation, location, and superior products—that enable the business to earn above-average profits; stated differently, the excess paid for an existing business over the appraised value of the net assets.

Units-of-production depreciation

Depreciation method based on a measure of production rather than a measure of time; for example, an automobile may be depreciated based on the expected miles to be driven rather than on a specific number of years.

Amortization

Method of systematically allocating the costs of intangible assets to expense over their useful lives; also term for converting the discount on a note or a bond to interest expense over a designated period.

Trademark

Name or symbol that identifies a company or an individual product.

Capital expenditures

(on an existing asset) Substantial amounts of funds spent to improve an asset's quality or to extend its life.

Historical cost concept

Actual price paid for an asset when it was purchased.

Depreciation

Decline in value of long-term tangible assets such as buildings, furniture, or equipment. It is systematically recognized by accountants as depreciation expense over the useful lives of the affected assets.

Depreciable cost

Original cost minus salvage value (of a long-term depreciable asset).

Relative fair market value method

Method of assigning value to individual assets acquired in a basket purchase in which each asset is assigned a percentage of the total price paid for all assets. The percentage assigned equals the market value of a particular asset divided by the total of the market values of all assets acquired in the basket purchase.

Contra asset account

Account subtracted from another account with which it is associated; has the effect of reducing the asset account with which it is associated.

Basket purchase

Acquisition of several assets in a single transaction with no specific cost attributed to each asset.

Tangible assets

Assets that can be touched, such as equipment, machinery, natural resources, and land.

Intangible assets

Assets that may be represented by pieces of paper or contracts that appear tangible; however, the true value of an intangible asset lies in the rights and privileges extended to its owners.

Current assets

Assets that will be converted to cash or consumed within one year or an operating cycle, whichever is longer.

Long-term operational assets

Assets used by a business to generate revenue; condition of being used distinguishes them from assets that are sold (inventory) and assets that are held (investments).

Property, plant, and equipment

Category of assets, sometimes called ,plant assets, used to produce products or to carry on the administrative and selling functions of a business; includes machinery and equipment, buildings, and land.

Accumulated Depreciation

Contra asset account that indicates the sum of all depreciation expense recognized for an asset since the date of acquisition.

Straight-line depreciation

Method of computing depreciation that allocates the cost of an asset to expense in equal amounts over its life. The formula for calculating straight line depreciation is [(Cost − Salvage)/Useful Life].

Depletion

Method of systematically allocating the costs of natural resources to expense as the resources are removed from the land.

Natural resources

Mineral deposits, oil and gas reserves, and reserves of timber, mines, and quarries are examples; sometimes called ,wasting assets, because their value wastes away as the resources are removed.

Double-declining-balance depreciation

Depreciation method that recognizes larger amounts of depreciation in the early stages of an asset's life and progressively smaller amounts as the asset ages.

Accelerated depreciation method

Depreciation methods that recognize depreciation expense more rapidly in the early stages of an asset's life than in the later stages of its life.

Franchise

Exclusive right to sell products or perform services in certain geographic areas.

Salvage value

Expected selling price of an asset at the end of its useful life.

Book value

Historical (original) cost of an asset minus the accumulated depreciation; alternatively, undepreciated amount to date.

Copyright

Legal protection of writings, musical compositions, and other intellectual property for the exclusive use of the creator or persons assigned the right by the creator.

Patent

Legal right granted by the U.S. Patent Office ensuring a company or an individual the exclusive right to a product or process.

Depreciation expense

Portion of the original cost of a long-term tangible asset systematically allocated to an expense account in a given period.

Estimated useful life

Time for which an asset is expected to be used by a business.