Exam two accounting

Allowance Method

A method of accounting for uncollectible accounts in which estimated bad debts are recorded in the same period as the related sales using an adjusting entry that creates Allowance for Doubtful Accounts (a contra-asset).

Bad Debts

Accounts receivable that are no longer expected to be collected from customers.

Direct Write-Off Method

A method of accounting for uncollectible accounts where bad debts are recorded only when a specific account is known to be uncollectible. No estimating is done in advance.

Maturity Date of a Note

The date on which the note’s principal and interest are due to be repaid

Amortization

Systematic allocation of the cost of intangible assets (e.g., patents, copyrights) over their useful life.

Betterments

Expenditures that improve a plant asset by making it more productive, efficient, or longer-lasting. They increase the asset’s book value (capitalized).

Capital Expenditures

Costs that provide benefits beyond the current period (extend life, enhance capacity). They are added to the asset account.

Indefinite Life

An intangible asset with no foreseeable limits to its life (e.g., trademarks). These are NOT amortized.

intangible assets

assets with no physical substance but long-term value (patents, copyrights, trademarks, goodwill).

Land Improvements

Additions to land that have limited lives (fences, parking lots, lighting). These are depreciated.

natural recources

Assets that are physically used up (timber, oil, coal, minerals, gravel).