Week 7 - Accounting For Depreciation And Bad Debts Flashcards
What does estimated useful life mean?
Estimated useful life is the expected length Pof time that a non-current assets will be used in the business.
What does residual value mean?
Residual value is the estimated amount that a non-current asset will be worth at the end of its useful life
What is the straight-line method?
The straight-line method is providing for depreciation charges an equal annual amount as an expense so that the asset falls in values evenly throughout its useful.
What does the depreciation charge mean?
This is the amount charged to the statement of profit or loss to spread the cost of non-current assets over the life of the those assets
What does accumulated depreciation mean?
Accumulated depreciation is the total depreciation that has been charged on an asset since it was purchased. This is deducted from the cost of an asset to arrive at its net book value.
What does the net book value (NBV) mean?
The new book value is found by taking the cost of an asset and deduction the accumulated depreciation that has charged on that asset since it was purchased.
What is the reducing- balance method?
The reduc
What does bad debt mean?
This arises when a customer who owes money to the business for goods or services received on credit becomes unable to pay the amount due. At that time it should no longer be included in the trade receivables figure as it does not represent an asset.
How do you account for bad debt?
Deduct the amount of the bad debt from the trade receivables figure. Show the total debts written off in the accounting period as an expense in the income statement.
What is the provision for doubtful debts?
It is an amount deducted from trade receivables to recognise that a proportion of those amounts will eventually not be received by the business.
What is the prudence concept?
The prudence concept requires that, when accounts are being prepared, income should never be anticipated but all possible costs should be taken into account.
How to account for doubtful debts?
Deduct the total provision required from the trade receivables figure. Charge any increase in the provision as an expense in the statement of profit or loss.
What is an intangible assets?
An intangible asset is an asset without any physical substance. Examples include goodwill and brand names
