Expense Recognition and Depreciation Flashcards
What are the three approaches to expense recognition?
direct association, immediate recognition and systematic allocation
When the cost is directly associated with a specific source of revenue, it falls under the expense recognition type of ________ __________.
direct association
When the cost can be associated with the revenues of an accounting period, but not with any specific sales transaction, it falls under the expense recognition type of ________ __________.
immediate recognition
When the cost benefits more than one accounting period, not associated with a specific revenue or time period, it falls under the expense recognition type of ________ __________.
systematic allocation
COGS and warranty costs are examples of the expense recognition type _______ _____________.
direct association
Insurance, utilities, salaries, marketing, research + development are all examples of the expense recognition type ________ ____________.
immediate recognition
Depreciation expense and amortization expense are examples of the expense recognition type _________ __________.
systematic allocation
In order to record this type of expense recognition, you recognize it at the same time as the related revenue is recognized.
direct association
This expense recognition type is recognized in the period incurred.
immediate recognition
In order to record this type of expense recognition, you capitalize it as an asset, then later convert it to an expense over the useful life.
systematic allocation
What are the three types of depreciation?
straight-line, double declining and units of production
What is the equation for straight-line depreciation?
depreciation expense =
(OG cost of (estimated
fixed asset) — salvage value)
_____________________________________
(estimated useful life of asset)
True or false: the purpose of depreciation is to reflect the using up of productive capacity of an asset over its useful life.
True
True or false: the purpose of depreciation is to reflect the fair market value of an asset.
False
What is the straight-line rate?
1 / (useful life)
What are the 4 steps of doing a double-declining balance?
- Calculate the straight-line rate.
- Multiply by 2.
- Multiply the doubled rate by the book value of the asset.
- Depreciate the asset down to the estimated salvage amount.
How do you calculate the book value of an asset?
book value =
(asset cost) - (accum. depreciation)
What are the 2 steps of doing a units of production depreciation?
- Take the depreciable base and divide it by the total number of units expected to be processed over the lifetime of the asset.
- Per year, take the number of units produced and multiply by the rate from #1.
How do you calculate the depreciable base?
OG value of the asset - salvage value
Total depreciation over the asset’s life is __________ for all methods.
identical
Salvage value is the same thing as ______ value.
residual
All depreciation methods yield the same ______ ________.
salvage / residual value
This depreciation type is typically used with natural resources.
units of production
This depreciation type compares time and usage, used with ACTIVITY.
units of production
Changes in accounting estimates are used to change the ________ ________ or ________ ________.
useful life or salvage value
All changes in accounting estimates are made on a prospective basis, meaning that it only affects _________ periods.
future
True or false: Changes in accounting estimates also must affect periods that came prior to the change.
False
How do you calculate the book value of an asset?
total cost - accumulated depreciation
How to calculate the rate for average cost depreciation?
total cost / total # of units
