Chapter 7 Key Words Flashcards
Record an expenditure as an asset.
capitalize
Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation.
land improvements
Purchase of more than one asset at the same time for one purchase price.
basket purchase
Assets like oil, natural gas, and timber that we can physically use up or deplete.
natural resources
Long-term assets that lack physical substance, and whose existence is often based on a legal contract.
intangible assets
An exclusive right to manufacture a product or to use a process.
patent
An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.
copyright
A word, slogan, or symbol that distinctively identifies a company, product, or service.
trademark
Local outlets that pay for the exclusive right to use the franchisor company’s name and to sell its products within a specified geographical area.
franchise
equals the purchase price less the fair value of the net assets acquired.
goodwill
Expenses that maintain a given level of benefits in the period incurred
repairs and maintenance
Occurs when a new major component is added to an existing asset
addition
The cost of replacing a major component of an asset.
improvement
Large enough to influence a decision.
material
Allocating the cost of a long-term asset to an expense over its service life
depreciation
A contra asset account representing the total depreciation taken to date.
accumulated depreciation
An asset’s original cost less accumulated depreciation
book value
How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life.
service life
The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.
residual value
The pattern in which the asset’s depreciable cost (original cost minus residual value) is allocated over time.
depreciation method
Allocates an equal amount of depreciation to each year of the asset’s service life.
straight-line method
Allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years.
accelerated depreciation method
Allocates an asset’s cost based on its use.
activity-based method
Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.
return on assets
Net income divided by net sales; indicates the earnings per dollar of sales.
profit margin
Net sales divided by average total assets, which measures the sales per dollar of assets invested.
asset turnover
Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).
impairment
Recording all losses in one year to make a bad year even worse.
big bath
