Week 8 Depreciation and Inventory Valuation Methods

These flashcards cover key vocabulary and concepts related to depreciation and inventory valuation methods discussed in the Financial Accounting course.

Depreciation

An accounting method used to allocate the cost of a tangible asset over its useful life.

Straight Line Depreciation (SL)

A method whereby the same amount of depreciation expense is allocated each year over the asset's useful life.

Reducing Balance Depreciation (RB)

A method where depreciation expense is calculated by applying a fixed percentage to the asset's book value each year.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold by a company.

FIFO (First In, First Out)

An inventory valuation method where the oldest inventory items are sold first.

LIFO (Last In, First Out)

An inventory valuation method where the most recently purchased inventory items are sold first.

AVCO (Average Cost)

An inventory valuation method that calculates a new average cost price each time new units are received.

Residual Value

The estimated value that an asset will realize upon its sale at the end of its useful life.

Useful Life

The period over which an asset is expected to be used by a business.

Depreciation Expense

The amount of depreciation charged to expense in a given accounting period.

Scrap Value

The estimated resale value of an asset at the end of its useful life.

Accumulated Depreciation

The total amount of depreciation that has been expensed against an asset since it was acquired.

Book Value

The value of an asset as it appears on the balance sheet, calculated as cost minus accumulated depreciation.

Depreciation Rate

The percentage of depreciation that is applied to an asset's value each year in reducing balance method.

Cost per Unit

The total cost of producing or purchasing an inventory item divided by the number of units produced or purchased.