Deprecation
Book Value
Cost - Accumulated Deprecation
Regarding notes receivable, what adjusting entry must be done at the end of the year.
You must recognize any interest earned
Interest Receivable XX
Interest Revenue XX
The length of time a plant asset is used in a company’s operations.
Useful Life
What is a lump-sum purchase ?
Plant assets purchased as a group for a single lump-sum price. The cost is allocated to the assets acquired based on their relative market (or appraised) values
True or False: When using the allowance method for bad debts, accounts written off during the year are a debit to bad debt expense.
False: When using the allowance method for bad debts, accounts written off during the year are debited to the allowance for doubtful accounts. Bad debt expense is only used during the end of the year adjustments.
What is deprecation ?
Cost allocation of plant assets
What is the journal entry for a payment that is received on an account that has previously been written off ?
You must reverse the write off entry so payment can be recorded.
Accounts receivable XX
ADA XX
Cash XX
Accounts receivable XX
Patents, trademarks, goodwill and copyrights are all examples of what ?
Intangible Assets
True or False: Betterment are expenditures that make a plant asset more efficient or productive.
True
Income statement method of estimating bad debts
The income statement method or percentage of sales method (Revenue/sales are on the income statement) for estimating bad debts:
Sales multiplied by percentage of sales noncollectable = Bad debt expense
What is the formula for straight-line deprecation ?
Deprecation = (Cost - Salvage Value)/Useful Life X months in service
How do you record a sale on a credit card ?
Cash XX
Credit Card Expense XX
Revenue XX
Contra asset account that is tied to accounts receivable
Allowance for Doubtful Accounts (ADA)
What is the general rule when figuring out the cost of an acquisition ?
All costs necessary to place the asset in condition and position to use.
What are bad debts ?
Bad debts are noncollectable accounts that are an expense of selling on credit
True or False: When figuring out deprecation using the double declining balance method you subtract the salvage value from the cost before you multiply the percentage in the first year.
False: When using double declining balance you use the full purchase price multiplied by the percentage in the first year. Subsequent years you will use the book value multiplied by the percentage. In the last year the amount that is deprecated can not make the book value less than the salvage value.
What is the year end adjustment for deprecation ?
Deprecation Expense XX
Accumulated Deprecation XX
A signed promise to pay a specified amount of money at a future date.
Note Receivable
True or False: All property taxes paid when acquiring an asset are apart of the acquisition cost.
False: Only past due taxes are apart of the cost of the asset.
Does writing off an actual account change net realizable value ?
No, net realizable value is A/R – ADA. When you write off an account you decrease A/R and you decrease ADA by the same amount. Since you are decreasing each by the same amount, there is no change on the difference. If A/R is 200 and ADA is 20, NRV would be 180. If I write of an account for 2, I would decrease A/R and ADA by 2. So, A/R is now 198 and ADA is 18. The difference is still 180.
What is amortization ?
Cost allocation of intangible assets.
What is the year end entry to record bad debts ?
Bad Debts Expense XX
Allowance for Doubtful Accounts XX
The true value of what you expect to collect.
Net realizable value
What is the difference between an ordinary repair and a extraordinary repair ?
An ordinary repair puts the asset back to its original condition and is recorded as an expense. An extraordinary repair is a capital expenditure that extends the useful life and is recorded as an asset.
Balance sheet method of estimating bad debts
The balance sheet method of estimating bad debts or percentage of accounts receivables method (accounts receivable is on the balance sheet) of estimating bad debts:
Accounts receivable multiplied by percentage deemed noncollectable = the ending balance of accounts receivable
The difference between the current balance in accounts receivable and what the ending balance should be is the bad debt expense to be adjusted.