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Ch. 21 vocab.
|Cash and other assets expected to be exchanged for cash or consumed within a year.
|Assets that will be used for a number of years in the operation of a business.
|Financial statements contain all information necessary to understand a business's financial condition.
|Businesses may have three major types of plant assets - equipment, buildings, and land.
|FYI – 3 major plant assets
|The actual amount paid for merchandise or other items bought is recorded.
|Land and anything attached to the land.
|All property not classified as real property.
|The value of an asset determined by tax authorities for the purpose of calculating taxes.
|Assessed value is usually based on the judgment of persons referred to as assessors (elected by citizens or specially trained employees of a governmental unit).
|FYI – assessed value extra
|Revenue from a business activities and expenses associated with earning that revenue are recorded in the same accounting period.
|Matching Expenses with Revenue
|The portion of a plants asset's cost that is transferred to an expense account in each fiscal period during a plant asset's useful life.
|The original cost of a plant asset includes all costs paid to make the asset usable to a business. These costs include the price of the asset, delivery costs, and any necessary installation costs.
|The amount an owner expects to receive when a plant asset is removed from use.
|Estimated Salvage Value
|Estimated salvage value may also be referred to as residual value or scrap value.
|FYI – Residual Value or Scrap Value
|The total amount of depreciation expense is distributed over the estimated useful life of a plant asset.
|Estimated Useful Life
|Is caused by wear from use and deterioration from aging and weathering.
|Occurs when a plant asset becomes inadequate or obsolete.
|No longer satisfactorily perform the needed service.
|A newer asset can operate more efficiently or produce better service.
|Charging an equal amount of depreciation expense for a plant asset in each year of useful life.
|Straight-line Method of Depreciation
|The total amount of depreciation expense that has been recorded since the purchase of a plant asset.
|The original cost of a plant asset minus accumulated depreciation.
|Book Value of a Plant Asset
|An accounting form on which a business records information about each plant asset.
|Plant Asset Record
|At any time, the book value of plant assets can be calculated by subtracting Accumulated Depreciation form the plant asset account.
|FYI – Calculating book value any time
|A plant asset may be sold at any time during the asset's useful life. When a plant asset is sold, its depreciation form the beginning of the current fiscal year to the date of disposal is recorded.
|FYI – plant asset sold
|Revenue that results when a plant asset is sold for more than the book value.
|Gain on Plant Assets
|A gain form the sale of plant assets is not an operating expense. Therefore, Gain on Plant Assets is listed in a classification titled Other Revenue in the chart of accounts.
|The loss that results when a plant asset is sold for less than book value.
|Loss on Plant Assets
|A loss from the sale of plant assets is not a operating expense. Therefore, Loss on Plant Assets is listed in a classification titled Other Expenses in the chart of accounts.
|Multiplying the book value by a constant depreciation rate at the end of each fiscal period.
|Declining-Balance Method of Depreciation
|Many businesses us a declining-balance rate that is two times the straight-line rate. This method of depreciation is referred to as the double declining-balance method.
|FYI – Double Declining-Balance Method
|A plant asset is never depreciated below its estimated salvage value.
|FYI – Plant Asset is Never