Accounting Module 4

net realizable value of accounts

the amount of receiveables the company estimates it will actually collect

allowance for doubtful accounts

companys estimate of the amount of uncollectible receivables

allowance method

requires accountants to estimate the amount of uncollectible accounts

contra asset

reduces total receivables

income statment approach

using estaimates of percentage of revenue

balance sheet approach

using estimates of percentage of accounts receivable

promissory note

issued as an agreement to pay account note

notes payable

longer term accounts payable

payee

Person whom a note is made payable to

creditor / lender

payee is also known as

maker

person responsible for making the payment on the due date

borrower or debtor

maker is also known as

principal

amount of money loaned by payee

maturity date

date the final payment is due

collateral

assets belonging to maker that are assigned as security

liquidity

how quickly assets are expected to be converted to cash during normal operations

True

Cost flow can differ from physical flow

FIFO

produces highest gross margin, net income and tax expense

LIFO

produces lowest gross margin, net income, tax expense

short term

liquidity ratios indicate a company’s ability to pay ___ debts

inventory

what is not included in quick or acid test ratios

used within 1 year

what is classified as a short term asset

tangible

assets with a physical presence

intangible

assets that cannot be seen (rights or priveliges)

depreciation

Term for PPE expense

depletion

Term for natural resources expense

Amortization

Term for intagible assets with identiifable useful lives

copyrights and patents

intangible assets with identifiable useful lives examples

impaired

Cost of intangible assets w indefinite useful lives are not expenses unless the value of the asset becomes ____

historical cost concept

requires an asset be recorded at the amount paid for it

basket purchase

acquiring a group of assets in a single transaction is known as a

fair market value method

for basket purchases, accountants commonly allocate the purchase price using the relative

acquire funding, buy asset, use asset, retire asset

life cycle of an operational asset

salvage value

expected market value of a fully depreciated asset

depreciation expense

amount of assets cost that is allocated to expense during an accounting period

depreciable cost

amount of depreciation a company recognizes for an asset

straight line depreciation

most companies use what method of depreciation

Straight line

produces the same amount of depreciation for each period

double declining

accelerated method

double declining

produces more depreciation in early years with a declining amount of expense in later years

units of production

produces varying amounts of depreciation expense in different periods

maintenance costs

expense in period in which they are incurred

capitalized costs

improves the quality or extends life of an asset

trademark

name or symbol that identifies company or product

indefinite

legal life of a trademark

patent

grants owner exclusive legal right to produce and sell product

20 years

legal life of patent

copyright

protects intellectual property

life of creator plus 70 years

legal life of a copyright

franchise

exclusive right to sell products or perform services

difficult to determine

legal life of a franchise

goodwill

value attributable to favorable factors such as reputation, location and superior products