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33 Cards in this Set
- Front
- Back
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Fixed Asset
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Tangible assets that have a useful life - being owned and used by the business and NOT offered for sale as part of normal operations.
"Capitalizing" all fixed assets means going on the balance sheet as an asset |
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Revenue expenditures
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Additional costs of plant assets that not increase the asset's life or productive capabilities
-reported on the income statement |
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Ordinary Maintenance and Repairs
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Expenditures related to the ordinary maintenance and repairs of fixed assets are recorded as an expense.
Journal entry: Repairs and maintenance expense Cash |
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Capital expenditures
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Additional costs of plant assets that provide benefits.
-debited to asset accounts -reported on the balance sheet -lasts longer than a 1 year -increase product capability |
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Asset improvement
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Any expenditures incurred to improve an asset should be capitalized.
Journal entry: Delivery Truck Cash |
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Depreciation
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Process of allocating the cost of a fixed asset to expense in the accounting periods benefiting for its use
-does not measure the decking in the assets market value -land is not depreciated |
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Accumulated Depreciation
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Contra asset account.
Journal entry: Depreciation expense Accumulated Depreciation |
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3 Factors that are considered in calculating depreciation
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1. Initial cost of fixed asset
2. Useful life - expected life of productivity (an estimate) 3. Salvage Value - estimate of the asset's vale -what you can get when you're done with it -also referred to as "residual value" or "scrap value" |
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Straight line method
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Provides for the same amount of depreciation expense for each year of the assets useful life
-most frequently used method -easiest |
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Straight line method formula
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cost - salvage value / useful life
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Units of production method
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Charges a varying amount to expense for each period of an as se's useful life depending on the usage.
-useful life is expressed in terms of units of productivity |
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Units of production method formula (two steps)
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Step #1 - Depreciation per unit = cost - salvage value / total units of production
Step #2 - Units x units produced in period = depreciation expense |
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Declining-balance method
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An accelerated depreciation method that yields larger depreciation expense during the early years of an assets life and less depreciation in the later years.
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Declining-balance method
Double declining rate formula |
Straight line rate x 2
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Change in estimates for depreciation -
What is depreciation based on? |
Estimates of salvage value and useful life; later, new information may indicate these estimates are inaccurate.
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Current liabilities-
Account Payable |
Arises from purchasing goods or services for use in a companies operations for purchasing merchandise for sale.
-Usually the largest current liability. |
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Current portion of long term debt
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The portion of the long term installments that are due within the current year are classify as a current liability.
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Short Term Notes Payable
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Written promises to pay a specific amount on a definite future date, within one year. Issued when merchandise or other assets are purchased.
Journal entry: Issuance of short term notes payable to satisfy an account payable created earlier (overdue account). Accounts payable Notes payable Record payment of a note when it matures. Notes payable Interest expense Cash Bank issues note to borrower. Cash Notes payable Bank records payment of not from borrower. Notes payable Interest expense Cash |
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Discounted note
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-Sometimes issued instead of an interest bearing note.
-Discount - interest on a note -Discount rate - rate used in computing the discount; interest rate |
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Example of discounted note
Assume that on Feb. 21st, JCJ company issues a $40,000 60 day discounted note to Holiday National Bank. The discount rate is 12%. Lender: Borrower: Amount of the discount: |
Assume that on Feb. 21st, JCJ company issues a $40,000 60 day discounted note to Holiday National Bank. The discount rate is 12%.
Lender: Holiday national bank Borrower: Jcj company Amount of the discount: (40,0000 x .12 x 60/ 360)=$800 |
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Reported depreciation
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Both the cost and accumulated depreciation of plant assets are reported on the balance sheet or in its note.
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Natural resources
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Assets that are physically consumed when used.
Example: Timber, mineral deposits, oil, and gas fields -reported on the balance sheet -cost less than accumulated depreciation |
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Depletion (same as depreciation)
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The process of transferring the cost of a natural resource to an expense
Adjusting journal entry to record depletion: Depletion expense Accumulated depletion |
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Intangible assets
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Long lived assets that are useful in the operations of a business and not held for sale such as patents, copyrights, trademarks, goodwill.
Example: Mcdonalds golden arch = symbolism |
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Patent
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An exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for 20 years.
Journal entry: Amortization expense Patents |
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Copyright
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Exclusive rights given to its owner to publish and sell a musical, literary or artistic work during the life of the creator plus 70 years beyond the authors life.
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Trademarks and trade names
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Symbols, names, phrases, or jingles identified with a company, product, or service.
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Goodwill
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The amount by which the value of a company exceeds the value of its individual assets and liabilities.
Example: superior management, skilled workforce, customer relations, good location, or quality product |
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Payroll liabilities - Gross pay
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total compensation an employee earns including bonuses and overtime pay.
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Payroll liabilities - Net pay
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Gross pay less all deductions
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Contingent liabilities - "Possible liability"
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Potential obligations that depends on a future event arising from a past transaction or event (loss)
Example: litigation, environmental matters, guarantees, and contingencies from sale of receivables Journal entry - entry to record estimated liability: Expense Payable Hav a contingent liability transaction Payable Supplies Wages payable |
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Corporations
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a legal entity, distinct and separate from the individuals who create and operate it.
-Privately own: does not offer stock for public sale, very few stockholders -Publicly held: offers stocks for public sale, thousands of stockholders (major corporations) |
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Advantages of corporations
Separate legal entity |
A corporation conducts its affairs with the same rights, duties, and responsibilities of a person.
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