Long-Term Assets in Accounting Flashcards

Long-Term Assets in Accounting Flashcards
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Straight Line Depreciation Method: Formula
Annual depreciation expense = (Cost of the asset - asset's residual value) / Asset's useful life
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Straight Line Depreciation Method
A simple method for calculating depreciation. This uses an even rate of depreciation for each year. It's good if you plan to use an item consistently throughout its life.
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Net Book Value
This value is found by taking the initial price paid for a product and subtracting the amount of accumulated depreciation on the product.
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How to find the amount of a loss or gain when exchanging a product
Proceeds received from the exchange - net book value of the product traded = amount gained or lost
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How to find the amount of a loss or gain when selling a product
Profit from sale - net book value of product = amount gained or lost
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How to find allocated cost for a building when purchasing both a building and land
Appraised cost of the building / appraised cost for both building and land x total cost paid = allocated cost
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Revenue Expenditures
Businesses have to pay these expenses, which deal with actually manufacturing goods, in order to carry out maintenance and repairs.
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Capital Expenditures
These are the expenses a business faces when buying an asset and getting it ready to use. These costs allow you to begin producing a good or service.
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Purchase of Property: Asset Amount
An amount that reflects the costs incurred to begin using an asset. This can include the initial price along with the costs for installation and transportation.
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Depletion Expense Calculation
Cost of the asset / natural resources contained in asset = cost per unit. Cost per unit x units removed = depletion expense for a given year.
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Accumulated Depletion - Land Account
A contra-asset account that records the depletion of resources from land, or the depletion expense associated with land.
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How the real end-of-year value of a land account is determined
Initial price to purchase the land - amount in the accumulated depletion account = end-of-year value
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Contra-Asset Account
This kind of account usually keeps a credit balance. These accounts are typically attached to the asset that provides them with their current value.
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Use the Sum of the Years' Digits method to find the depreciation value for year one of a tractor that you bought for $10,000 with a lifespan of 5 years.
1+2+3+4+5 = 15. 5/15 = 0.33. $10,000 x 0.33 = $3,300.
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Sum of the Years' Digits Depreciation Method: Formula
Add the years of an item's life together. Divide each year by total to find the depreciation percentage for each year. Multiply initial cost by the depreciation percentage for cost per year.
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Sum of the Years' Digits Depreciation Method
In this method, the highest depreciation percentage will occur in the first year, with depreciation decreasing yearly. Use this if you think you'll use an item more in the beginning of its life.
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32 cards in set

Flashcard Content Overview

These flashcards can help you go over different kinds of assets found in accounting. You'll find cards that address the units of production depreciation method, the double-declining balance depreciation method, the straight line depreciation method and the sum of the years' digits depreciation method. Depletion and amortization will also be covered. Additionally, these cards focus on revenue and capital expenses.

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Sum of the Years' Digits Depreciation Method
In this method, the highest depreciation percentage will occur in the first year, with depreciation decreasing yearly. Use this if you think you'll use an item more in the beginning of its life.
Sum of the Years' Digits Depreciation Method: Formula
Add the years of an item's life together. Divide each year by total to find the depreciation percentage for each year. Multiply initial cost by the depreciation percentage for cost per year.
Use the Sum of the Years' Digits method to find the depreciation value for year one of a tractor that you bought for $10,000 with a lifespan of 5 years.
1+2+3+4+5 = 15. 5/15 = 0.33. $10,000 x 0.33 = $3,300.
Contra-Asset Account
This kind of account usually keeps a credit balance. These accounts are typically attached to the asset that provides them with their current value.
How the real end-of-year value of a land account is determined
Initial price to purchase the land - amount in the accumulated depletion account = end-of-year value
Accumulated Depletion - Land Account
A contra-asset account that records the depletion of resources from land, or the depletion expense associated with land.
Depletion Expense Calculation
Cost of the asset / natural resources contained in asset = cost per unit. Cost per unit x units removed = depletion expense for a given year.
Purchase of Property: Asset Amount
An amount that reflects the costs incurred to begin using an asset. This can include the initial price along with the costs for installation and transportation.
Capital Expenditures
These are the expenses a business faces when buying an asset and getting it ready to use. These costs allow you to begin producing a good or service.
Revenue Expenditures
Businesses have to pay these expenses, which deal with actually manufacturing goods, in order to carry out maintenance and repairs.
How to find allocated cost for a building when purchasing both a building and land
Appraised cost of the building / appraised cost for both building and land x total cost paid = allocated cost
How to find the amount of a loss or gain when selling a product
Profit from sale - net book value of product = amount gained or lost
How to find the amount of a loss or gain when exchanging a product
Proceeds received from the exchange - net book value of the product traded = amount gained or lost
Net Book Value
This value is found by taking the initial price paid for a product and subtracting the amount of accumulated depreciation on the product.
Straight Line Depreciation Method
A simple method for calculating depreciation. This uses an even rate of depreciation for each year. It's good if you plan to use an item consistently throughout its life.
Straight Line Depreciation Method: Formula
Annual depreciation expense = (Cost of the asset - asset's residual value) / Asset's useful life
Double-Declining Balance Depreciation Method
You can use this method to find depreciation when a larger amount of depreciation occurs at first due to increased use of the item in the first years that you own an item.
Double-Declining Balance Depreciation Method: Formula
Current year depreciation = asset book value (or initial value for the first year) x double depreciation %
Double Depreciation % Formula
Find annual % of depreciation with formula: 100 / years of useful life. Multiply this percentage by two. This gives you the double depreciation percentage.
Land
An asset with an infinite life that has costs we can't place in a set period of time. Because of these characteristics, this asset is not subject to depreciation.
Depletion
A process that can be used to allocate the cost of natural resources as they are used in the generation of revenue.
Depreciation
This process is used to allocate the costs of things like plants, equipment and property as these assets are earning revenue.
Amortization
This is similar to depreciation, only we use it to handle assets that are intangible.
Asset Turnover Ratio
A ratio that companies can use to see how efficiently they're making use of their assets. These assets may be in the form of equipment, property or plants.
Asset Turnover Ratio: Formula
Net sales / average assets (including plant, equipment and property). You find average assets by adding the assets of given years and then dividing by the number of years you added.
Units of Production Depreciation Method
A method for finding the depreciation of assets that you will use in differing amounts year by year. It looks at depreciation based on the number of items produced by an asset.
Units of Production Deprecation Method: Formula
Cost of the asset / number of items the asset can produce in its life = cost per unit produced. Cost of unit produced x items produced in one year = yearly depreciation.
Plant Assets
These are assets that don't become part of the product you make. They are still used to make money and are useful for longer than a single year. Examples can include buildings or improvements.
Balance Sheets: Depreciation
When we record depreciation on this document, it shows the amount of depreciation paid annually.
Income Statements: Depreciation
Businesses only record the depreciation that occurs in a certain period of time, usually monthly, on this financial document.
Intangible Assets
These assets possess value in now and in the future, even though they aren't physical. Examples include intellectual property, such as the name of your company, and information about customers.
Use the straight line depreciation method to find the annual depreciation expense of a tractor you bought for $10,000 with a useful life of 10 years and a residual value of $1,000.
10,000 - 1,000 = 9,000. 9,000 / 10 = $900.

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