Ch. 9 Terms Flashcards
Accelerated Depreciation Method
A depreciation method that expenses more of the asset’s cost near the start of its useful life and less at the end of its useful life.
Amortization
The process by which businesses spread the allocation of an intangible asset’s cost over its useful life.
Asset Turnover Ratio
Measures how efficiently a business uses its average total assets to generate sales. ( Net Sales Revenue / Average Total Assets ).
Book Value
A depreciable asset’s cost minus accumulated depreciation.
Capital Expenditure
An expenditure that increases the capacity or efficiency of a plant asset or extends its useful life. Capital Expenditure are debited to an asset account.
Capitalize
Recording the acquisition of land, building, and other assets by debiting (increasing) an asset account.
Commercial Substance
A characteristic of a transaction that causes a change in future cash flows.
Copyright
Exclusive right to reproduce and sell a book, musical composition, film, or other work of art, or intellectual property.
Cost Principle
A principle that states the acquired assets and services should be recorded at their actual cost.
Depletion
The process by which businesses spread the allocation of a natural resource’s cost over its usage.
Depreciable Cost
The cost of a plant asset minus its estimated residual value.
Depreciation
The process by which businesses spread the allocation of a plant asset’s cost over its useful life.
Double Declining Balance Method
An accelerated depreciation method that computes annual depreciation by multiplying the depreciable asset’s decreasing book value by a constant percent that is two times the straight line depreciation rate.
Extraordinary Repair
Repair work that generates a capital expenditure because it extends the asset’s life past the normal expected life.
Franchise
Privilege granted by a business to sell a product or service under specified conditions.
Goodwill
Excess of the cost of an acquired company over the sum of the market values of its net assets ( assets - liabilities ).
Impairment
A permanent decline in asset value.
Intangible Asset
An asset with no physical form that is valuable because of the special rights it carries.
Land Improvement
A depreciation improvement to land, such as fencing, paving, signs, and lighting.
License
Privilege granted by a government to use public property in performing services.
Modified Accelerated Cost Recovery System (MACRS)
A depreciation method that is used for tax purposes.
Natural Resource
An asset that comes from the earth and is consumed.
Obsolete
An asset is considered obsolete when a newer asset can perform the job more efficiently.
Patent
An intangible asset that is a federal government grant conveying an exclusive 20-year right to produce and sell a process, product, or formula.
