Every term, formula, and entry

Terms

C1 Plant assets

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Tangible long-lived assets used to produce or sell products and services.

C1 Cost principle

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A plant asset is recorded at its actual cost, including all normal and necessary costs to get it ready for its intended use.

C1 Land

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Land held for use in operations; never depreciated because it does not wear out.

C1 Land improvements

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Additions to land with a limited useful life, such as parking lots and fences, depreciated separately from the land itself.

C1 Buildings

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Structures used in operations, depreciated over their useful lives.

C1 Machinery and equipment

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Machines and equipment used to produce or sell products and services.

C1 Lump-sum purchase

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Buying more than one asset in a single transaction for one price, allocated among the assets by their relative market values.

P1 Depreciation

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The process of allocating a plant asset’s cost to expense over its useful life.

P1 Cost

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A plant asset's total cost of acquisition, including all costs to get it ready for its intended use.

P1 Salvage value

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The estimated value of a plant asset at the end of its useful life.

P1 Useful life

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The length of time a plant asset is productively used in a company’s operations.

P1 Obsolescence

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An asset becoming out of date and no longer useful in generating revenue, before it physically wears out.

P1 Inadequacy

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An asset no longer being large or productive enough for a company’s current needs.

P1 Straight-line method

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Allocates an equal amount of depreciation to each period of a plant asset’s useful life.

P1 Units-of-production method

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Allocates depreciation based on the actual units the asset produces each period.

P1 Declining-balance method

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An accelerated method that applies a constant rate to the asset’s declining book value each period.

P1 Double-declining-balance method

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A declining-balance method using twice the straight-line rate, ignoring salvage value except as a floor on book value.

P1 Accelerated depreciation

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Any method that yields larger depreciation charges in the earlier years of an asset’s life.

P1 Modified Accelerated Cost Recovery System (MACRS)

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The depreciation system required for most U.S. income tax reporting, distinct from the methods used for financial reporting.

P1 Book value

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A plant asset’s cost minus its accumulated depreciation.

A2 Change in an accounting estimate

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A revision to an estimate, such as useful life or salvage value, applied to current and future periods only, never restating the past.

A2 Partial-year depreciation

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Depreciation recorded for only the portion of a year an asset was actually owned and used.

C2 Revenue expenditures

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Expenditures that keep an asset in normal, good operating condition; expensed immediately.

C2 Capital expenditures

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Expenditures that provide benefits extending beyond the current period; added to an asset’s cost.

C2 Betterments (improvements)

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Expenditures that make a plant asset more efficient or productive, without necessarily extending its life; capitalized.

C2 Extraordinary repairs

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Major repairs that extend a plant asset’s useful life beyond its original estimate; capitalized.

C2 Ordinary repairs

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Expenditures to keep a plant asset in normal operating condition; expensed as incurred.

A1 Impairment

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A permanent decline in a plant or intangible asset's value below its book value, recorded as a loss when it occurs.

P2 Natural resources

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Assets physically consumed when used, such as timber, minerals, and oil, that are removed from their natural setting.

P2 Depletion

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The process of allocating the cost of a natural resource to expense as it is extracted.

P2 Intangible assets

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Nonphysical assets, such as patents and trademarks, that give a company a long-term legal or competitive advantage.

P2 Patent

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An exclusive right granted to its owner to produce and sell an invention for a set period.

P2 Copyright

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An exclusive right granted to its owner to publish and sell a musical, literary, or artistic work during the creator’s life plus a set number of years.

P2 Trademark

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A symbol, name, or phrase identifying a company or its product, legally protected from use by others.

P2 Franchises and licenses

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Rights granted to sell a product or service, or use a trademark or technology, under specified conditions.

P2 Goodwill

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The amount by which a company’s value exceeds the fair value of its net identifiable assets; recorded only when purchased, never amortized.

P2 Amortization

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The process of allocating the cost of an intangible asset to expense over its useful life.

A3 Total asset turnover

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Net sales divided by average total assets; how efficiently a company uses its assets to generate sales.