Accounting Chapter 7 Flashcards

Terms Definitions
Operating assets
Assets used by a company in the normal course of operations to generate revenue
operating assets are used until their ________________ has been exhausted
service potential
The typical operating asset is used for a period of...
4 to 10 years
The 3 categories of operating assets are...
- Property, plant & equipment (PP&E) - Intangible assets - natural resources
What are property, plant, and equipment assets?
Tangible operating assets that can be seen and touched. Includes land, buildings, machines, and automobiles
What are two other names for PP&E assets?
Fixed assets or plant assets
What are intangible assets?
Generally result from legal and contractual rights, don't have physical substance. Includes patents, copyrights, trademarks, licenses, and goodwill.
What are natural resource assets?
Naturally occuring materials that have economic value such as timberlands and deposits, coal, oil, and gravel.
Explain how the historical cost principle relates to an operating asset.
An operating asset is recorded at its cost (including cost of acquiring the asset and the cost of preparing it for use).
Explain how the matching principle relates to the service potential of an operating asset.
When the service potential of an operating asset declines, the cost is allocated of the asset as an expense among the accouting periods in which the asset is used and benefits are received.
Refers to the decline in service potential for property, plant and equipment assets.
Refers to the decline in service potential for intangiable assets
Refers to the decline in service potential for natural resource assets.
Operating assets are often the most _______ of various types of assets acquired by an entity.
What is included in the PP&E operating asset category?
(Property, Plant & Equipment Category) - Land - Land improvements - Buildings - Equipment
Why is land not included in the depreciation category?
Land has an unlimited life and service potential is not subject to depreciation.
The cost of a fixed asset is...
Any expenditure necessary to acquire the asset and to prepare the asset for use.
Expenditures that are included as part of the cost of the asset are said to be ...
Expenditures that are not included as part of the cost of the asset are...
Expensed immediately
Generally recurring costs that benefit a period of time, not the asset's life, are...
Expensed instead of capitalized
Historical Cost Principal
Requires that a company record its fixed assets at the exchange prices at the time the asset is purchased.
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