Chapter 9 terms

declining balance

an accelerated depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense of over the useful life of the asset

lease

an agreement allowing one party to use another party's asset

operating lease

an agreement allowing the lessee to use the lessor's property and account for the lease as a rental. An operating lease is considered a revenue expenditure and is expensed, not capitalized

capitale expenditure

an expenditure which increases the company's investment in plant assets which are expected to be used to earn revenue over more than one time period

revenue expenditure

an expenditure which is immediately matched with revenue of the period - an expense

plant assets

assets expected to be used to earn revenue over more than one time period and not intended for sale to customers

land

can be a tangible plant asset, an investment or inventory. Never depreciates

additions and improvements

costs incurred to increase the operating efficiency, productive capacity or expected useful life of a plant asset and are treated as capital expenditures

ordinary repairs

costs that do not increase operating efficiency, productive capacity or expected useful life of a plant asset. They are treated as revenue expenditures

research and development costs

expenditures by a company that may lead to patents, copyrights, etc. Most of these are treated as revenue expenditures and expenses, not capitalized

intangible plant assets

have no physical substance. examples include copyrights, trademarks, trade names, patents, goodwill, franchise, etc. cost allocation of intangible assets is called amortization

tangible plant assets

have physical substance. Examples include cars, trucks, buildings, computers, etc. cost allocation of tangible plant assets is called depreciation

depreciable cost

the cost of a plant asset less its salvage value

book value

the cost of an asset less its accumulated depreciation

depreciation

the process of allocating to expense the cost of tangible plant asset over its useful life in a rational and systematic manner

capitalize

the term used to say that a transaction is recorded in the books as an asset not as an expense

accumulated depreciation

a contra asset account which shows the total amount of depreciation expense taken on a plant asset since it was acquired.

capital lease

a long-term agreement allowing the lessee to use the lessor's property. A capital lease is considered a capital expenditure and is capitalized and amortized

accelerated-depreciation

a method in which periodic depreciation is higher in early years of an asset's useful life

straight-line depreciation

a method in which periodic depreciation is the same for each year of the tangible plant asset's useful life. This method is called amortization if used to allocate cost of an intangible asset

units of activity depreciation

a method in which the useful life of the asset is expressed in terms of the total units of production or use expected from the assets. This method is called depletion if being used to allocate costs of natural resources