The document discusses accounting for assets, including:
- Methods for accounting for uncollectible accounts receivable like the direct write-off and allowance methods.
- Distinguishing between tangible and intangible long-term assets.
- Inventory valuation methods like periodic and perpetual, and issues like lower of cost or market.
Partnerships generally are associated with the practice of law, medicine, public accounting and other professions, and also with small business enterprises
Partnerships generally are associated with the practice of law, medicine, public accounting and other professions, and also with small business enterprises
Types of financial Statement means a Financial Statement contains 3 major statement. Here I described the types of financial Statements. It’s very important for every business. For more details https://www.accountingprime.com/
The article gives an overview of what are accounting source documents and what are their goals, content, and examples.
#manufacturing #manufacturer #accountingsource #mrpeasy #manufacturingsoftware #mrp #erp #erpsystem #mrpsoftware
Basic Accounting Terms used during business transactions have been explained.
I tried to cover all basic terms that are commonly used in a business.
Thank You So Much.
Accounting, as an information system is the process of identifying, measuring and communicating the economic information of an organization to its users who need the information for decision making. It identifies transactions and events of a specific entity. A transaction is an exchange in which each participant receives or sacrifices value (e.g. purchase of raw material). An event (whether internal or external) is a happening of consequence to an entity (e.g. use of raw material for production). An entity means an economic unit that performs economic activities.
An introduction to the three main financial statements using a tree analogy. If you like this, just imagine what I can do in person at your next event. Go to www.geniwhitehouse.com or www.evenanerd.com for more information and my list of topics, expertise, and nerdy obsessions.
My next deck is going to include basset hounds (see my post from 2023). That is a promise.
Preparation of financial statements for a business which has not maintained proper records(Double Entry records)
Profit Equation method or Converting incomplete records to complete records.
The Cash Flow Statement translates earnings in the Income Statement into cash inflows. Explained in detail above as a part of the topic “Financial accounting”, is brought to you by Welingkar’s Distance Learning Division.
For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting
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This presentation is based on the subject Financial Accounting which helps the beginners to know the basic concept of accounting . This is according to the syllabus of Pt. Ravishankar University , Raipur and Durg University, Durg.
Types of financial Statement means a Financial Statement contains 3 major statement. Here I described the types of financial Statements. It’s very important for every business. For more details https://www.accountingprime.com/
The article gives an overview of what are accounting source documents and what are their goals, content, and examples.
#manufacturing #manufacturer #accountingsource #mrpeasy #manufacturingsoftware #mrp #erp #erpsystem #mrpsoftware
Basic Accounting Terms used during business transactions have been explained.
I tried to cover all basic terms that are commonly used in a business.
Thank You So Much.
Accounting, as an information system is the process of identifying, measuring and communicating the economic information of an organization to its users who need the information for decision making. It identifies transactions and events of a specific entity. A transaction is an exchange in which each participant receives or sacrifices value (e.g. purchase of raw material). An event (whether internal or external) is a happening of consequence to an entity (e.g. use of raw material for production). An entity means an economic unit that performs economic activities.
An introduction to the three main financial statements using a tree analogy. If you like this, just imagine what I can do in person at your next event. Go to www.geniwhitehouse.com or www.evenanerd.com for more information and my list of topics, expertise, and nerdy obsessions.
My next deck is going to include basset hounds (see my post from 2023). That is a promise.
Preparation of financial statements for a business which has not maintained proper records(Double Entry records)
Profit Equation method or Converting incomplete records to complete records.
The Cash Flow Statement translates earnings in the Income Statement into cash inflows. Explained in detail above as a part of the topic “Financial accounting”, is brought to you by Welingkar’s Distance Learning Division.
For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting
Join us on Facebook: http://www.facebook.com/welearnindia
Follow us on Twitter: https://twitter.com/WeLearnIndia
Read our latest blog at: http://welearnindia.wordpress.com
Subscribe to our Slideshare Channel: http://www.slideshare.net/welingkarDLP
This presentation is based on the subject Financial Accounting which helps the beginners to know the basic concept of accounting . This is according to the syllabus of Pt. Ravishankar University , Raipur and Durg University, Durg.
Accrual accounting records revenue as earned and expense as incurred. This presentation explains the concept of accrual accounting and the basic terms that entail a balance sheet.
Marketable securities are liquid investments that ar.docxinfantsuk
Marketable securities are liquid investments that are held instead of cash.
from the
ASSETS
In what follows, we'll consider each asset and present the important elements of its financial/accounting treatment.
Cash. Cash is defined as money in bank checking accounts plus currency on hand. Currency is usually a minor amount. Companies keep cash balances in bank accounts to pay bills and as a precaution against unforeseen emergencies.
Larger companies usually hold a near-cash item called marketable securities as well as cash itself. Marketable securities are short-term investments that pay a modest return and are very secure. They can be sold almost immediately if the need arises. Thus, they fill the precautionary need for cash but earn a little interest at the same time.
Accounts Receivable. Accounts receivable represent credit sales that have not yet been collected. Under normal conditions, these should be paid in cash within a matter of weeks.
Most companies sell on credit terms of approximately 30 days. Customers often push those terms by taking somewhat longer to pay. That means it isn't unusual for a company to have 45 days of credit sales in receivables. That's (45/365=) 12.3% of a year's revenue.
The Bad-Debt Reserve. Receivables are usually stated net of an offsetting account called the allowance for doubtful accounts or the bad-debt reserve. As the name implies, this offset allows for the fact that most businesses make some credit sales that are never paid. These are usually a small percentage of total sales.
The bad-debt reserve is created and maintained by adding an amount equal to a small percentage of sales to its balance each month. This amount estimates credit sales that will never be collected even though nobody knows which ones will prove to be bad when they are made. The amount added is generally based on experience. The other side of the entry which maintains the reserve is an expense, that is, a reduction in profit.
Writing Off a Receivable. When a receivable is known to be uncollectible (perhaps because the customer is bankrupt), it should be written off. Writing off a receivable means reducing the balance in accounts receivable by the uncollected amount. The other side of the entry normally reduces the bad-debt reserve which has been provided regularly each month for that purpose. Hence a write-off doesn't generally affect the net receivables balance.
However, if the lost receivable is unusually large, the other side of the write-off has to go directly to an expense account. That generally represents an unexpected reduction in profit.
Overstated Receivables. Profit reductions caused by uncollectible receivables are distasteful, so managements sometimes postpone writing off bad debts that should be recognized. This causes the receivables balance to include amounts that will never be collected. Such an account is said to be overstated. The problem is illustrated in Example 2-1.
Cha ...
Even if you did want to branch out into finance and economics, a background in accountancy lays the valuable groundwork for developing broader monetary theories. Accountants can hone their craft through the application of known methodologies.
An accountancy certification is always valuable. You’ll learn how to focus on money management, financial recording and reporting, and the best processes to save cash for a business or sole traders. These skills are desired in every industry. For most accountants, it’s never hard to find work.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
As a business owner in Delaware, staying on top of your tax obligations is paramount, especially with the annual deadline for Delaware Franchise Tax looming on March 1. One such obligation is the annual Delaware Franchise Tax, which serves as a crucial requirement for maintaining your company’s legal standing within the state. While the prospect of handling tax matters may seem daunting, rest assured that the process can be straightforward with the right guidance. In this comprehensive guide, we’ll walk you through the steps of filing your Delaware Franchise Tax and provide insights to help you navigate the process effectively.
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RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
What is the TDS Return Filing Due Date for FY 2024-25.pdfseoforlegalpillers
It is crucial for the taxpayers to understand about the TDS Return Filing Due Date, so that they can fulfill your TDS obligations efficiently. Taxpayers can avoid penalties by sticking to the deadlines and by accurate filing of TDS. Timely filing of TDS will make sure about the availability of tax credits. You can also seek the professional guidance of experts like Legal Pillers for timely filing of the TDS Return.
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𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
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"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
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This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
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Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
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A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
2. Chapter Outline
• Accounting for Uncollectible Accounts for Accounts Receivable
• Distinguish between Tangible and Intangible Long Term Assets
• Analyze and Classify Capitalized Costs versus Expenses
• Explain and Apply Depreciation Methods to Allocate Capitalized Costs
• 11.4 Describe Accounting for Intangible Assets and Record Related
Transactions
3. Module 9.2 Account for Uncollectible Accounts Using the Balance
Sheet and Income Statement Approaches
Bad debts are uncollectible amounts from customer accounts and are
a necessary aspect of allowing customers to use credit to pay for goods
and services.
• Bad debt negatively affects accounts receivable.
• When future collection of receivables cannot be reasonably assumed,
companies must estimate the amount of expected nonpayment.
• Methods a company may use to recognize bad debt:
• The direct write-off method
• The allowance method
• Aging of accounts receivable method
4. Direct Write-off Method
• A bad debt is written off when the company is fairly certain that
collection is not possible.
• This method is not acceptable under GAAP because it violates the
matching principle.
• For example, a sale that occurs in January is not written off until November.
• January’s income includes the sale.
• November’s income includes bad debt expense.
5. • The allowance method estimates bad debt during a period, based on
past experience and industry standards.
• Matches bad debt with related sales during the period
• Two approaches to calculate amount of bad debt expense:
• Income statement approach
• Balance sheet approach
• Journal entry the same under either approach
Allowance Method
6. • The allowance for doubtful accounts is a contra asset account and is
subtracted from Accounts Receivable.
• A contra account has an opposite normal balance to its paired account.
• The adjustment can be an addition or a subtraction from a controlling account.
• Net Realizable Value of Accounts Receivable appears on the balance sheet
and is gross Accounts Receivable minus allowance for doubtful accounts on
the balance sheet.
7. Assume a company has reported an Accounts Receivable balance of $90,000
and a Balance in the Allowance of Doubtful Accounts of $4,800. The
following shows how this information would be reported in the current
(short-term) section of the company’s Balance Sheet.
Gross Accounts Receivable
Contra Account Net Accounts Receivable
Modified for PPT.
8. If the company already had a credit balance in Allowance for Doubtful Accounts
from the prior period of $1,000 and a current period estimated balance of $2,500,
the company would need to subtract the prior period’s credit balance from the
current period’s estimated credit balance in order to calculate the amount to be
added to the Allowance for Doubtful Accounts.
Therefore, the adjusting journal entry would be as follows.
9. If instead the company already had a debit balance from the prior period of $1,000,
and a current period estimated balance of $2,500, the company would need to add
the prior period’s debit balance to the current period’s estimated credit balance.
Therefore, the adjusting journal entry would be as follows.
10. When a specific customer has been identified as an uncollectible account, the
following journal entry would occur.
Let’s say that the customer unexpectedly pays on the account in the future.
11. Income Statement Method
The income statement method (also known as the percentage of sales
method) estimates bad debt expenses based on the assumption that at
the end of the period, a certain percentage of sales during the period
will not be collected. The estimation is typically based on credit sales
only, not total sales.
12. $458,230 × 5%
Let’s continue with Billie’s Watercraft Warehouse (BWW) as the
example. Billie’s end-of-year credit sales totaled $458,230. BWW
estimates that 5% of its overall credit sales will result in bad debt. The
following adjusting journal entry for bad debt occurs.
Modified for PPT.
13. On April 8, it was determined that Customer Robert Craft’s account was
uncollectible in the amount of $5,000. BWW makes the following entry:
14. On June 5, Craft unexpectedly makes a partial payment on his account
in the amount of $3,000.
15. Balance Sheet Method
The balance sheet method (also known as the percentage of accounts
receivable method) estimates bad debt expenses based on the balance
in accounts receivable. The method looks at the balance of accounts
receivable at the end of the period and assumes that a certain amount
will not be collected.
16. Assume that BWW’s end-of-year accounts receivable balance totaled
$324,850. This entry assumes a zero balance in Allowance for Doubtful
Accounts from the prior period. BWW estimates 15% of its overall
accounts receivable will result in bad debt. BWW would record the
following.
Prior Period Allowance Balance $ 0.00
Current Period Estimated 48,727.50
Allowance for Doubtful Accounts $48,727.50
17. What if instead, BWW had a $23,000 credit balance in the allowance
for doubtful accounts from the previous period. The adjusting entry
would be as follows.
18. The balance sheet aging of receivables method estimates bad debt expenses
based on the balance in accounts receivable, but it also considers the uncollectible
time period for each account. The longer the time passes with a receivable unpaid,
the lower the probability that it will get collected
For BWW, it has an accounts receivable balance of $324,850 at the end of the year.
The company splits its past-due accounts into three categories: 0–30 days past due,
31–90 days past due, and over 90 days past due. The uncollectible percentages and
the accounts receivable breakdown are shown here.
19. The journal entry to record the estimation of bad debts using aging of
accounts receivable would be as follows.
20. Suppose BWW had a $20,000 debit balance in Allowance for Doubtful
Accounts from the previous period. The adjusting journal entry would
recognize the following.
21. Module 10.1 Describe and Demonstrate the Basic Inventory Valuation
Methods and Their Cost Flow Assumptions
Accounting for inventory is a critical function of management.
Inventory accounting is significantly complicated by the fact that it is an
ongoing process of constant change, in part because
(1) most companies offer a large variety of products for sale
(2) product purchases occur at irregular times
(3) products are acquired for differing prices
(4) inventory acquisitions are based on sales projections, which are
always uncertain and often sporadic
22. Remember how inventory affects the balance sheet and the income
statement:
Figure 10.2
Financial Statement Effects of Inventory Transactions. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA
4.0 license)
23. Relationship between inventory purchases, goods available for sale,
and cost of goods sold:
Figure 10.3
Fundamentals of Inventory Accounting. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)
24. A critical issue for inventory accounting is the frequency for which inventory
values are updated.
There are two primary methods used to account for inventory balances: the
periodic inventory method and the perpetual inventory method.
Perpetual Inventory Method
Date Account Debit Credit
Inventory
Accounts Payable
$$$
$$$
Accounts Receivable
Sales
COGS
Inventory
$$$
SSS
SSS
SSS
Ordering Inventory
Selling Inventory
Periodic Inventory Method
Date Account Debit Credit
Purchases
Accounts Payable
$$$
$$$
Accounts Receivable
Sales
$$$
SSS
25. Additional Inventory Issues
• Consigned goods refer to merchandise inventory that belongs to a third
party but which is displayed for sale by the company. These goods are not
owned by the company and thus must not be included on the company’s
balance sheet nor be used in the company’s inventory calculations.
• Free on Board (FOB) are transportation costs. FOB shipping point means
that the seller transfers title and responsibility to the buyer at the shipping
point, so the buyer would owe the shipping costs. The purchased goods
would be recorded on the buyer’s balance sheet at this point.
• FOB destination means the seller transfers title and responsibility to the
buyer at the destination, so the seller would owe the shipping costs.
• Reporting inventory values on the balance sheet using the accounting
concept of conservatism (which discourages overstatement of net assets
and net income) requires inventory to be calculated and adjusted to a value
that is the lower of the cost calculated using the company’s chosen
valuation method or the market value based on the market or replacement
value of the inventory items. This is called Lower of Cost or Market (LCM)
26. Module 11.1 Distinguish between Tangible and Intangible Assets
Assets
• Are items a business owns
• Categorized as current or long-term
• Assets that are expected to be used by the business for more than one year
are considered long-term assets; all others are current.
• Long-term assets are not intended for resale.
• They are expected to help generate future revenue for the business.
• Are either tangible or intangible
• Tangible: have physical substance—can be seen and touched
• Intangible: assets used in the operations of the business that they do not
intend to sell, but that do not have physical substance, such as patents,
copyrights, trademarks, franchises
27. Figure 11.2
Property, Plant and Equipment is a common subheading within long-
term assets.
Apple Inc.’s Property, Plant and Equipment, Net. This report shows the company’s consolidated financial statement details as
of September 30, 2017, and September 24, 2016 (in millions). (attribution: Copyright Rice University, OpenStax, under CC BY-
NC-SA 4.0 license)
28. Figure 11.3
Consolidated Balance Sheets for Apple, Inc. in 2017 and 2016. Modified for PPT. (attribution: Copyright Rice University,
OpenStax, under CC BY-NC-SA 4.0 license)
Different categories
of long-term assets
held by Apple, Inc.
29. Intangible Assets
• The value of intangible assets is very subjective. An intangible is usually not
shown on the balance sheet until there is an event that indicates value
objectively, such as the purchase of an intangible asset.
• A company often records the costs of developing an intangible asset internally as
expenses, not assets, especially if there is ambiguity in the expense amounts or
economic life of the asset. There are conditions under which the costs can be
allocated over the anticipated life of the asset.
• Sample intangibles:
• Patent: a contract that provides a company exclusive rights to produce and sell a unique
product for 20 years; right is granted by the federal government
• Copyright: the exclusive right to reproduce and sell artistic, literary, or musical compositions
for the life of the author plus 70 years; right is granted by the federal government
• Trademark: the exclusive right to the name, term, or symbol a company uses to identify itself
or its products for 10 years with optional 10-year renewable periods; right is granted by the
federal government
30. Think It Through: Categorizing Intangible Assets
Your company has recently hired a star scientist who has a history of
developing new technologies. The company president is excited with
the new hire, and questions you, the company accountant, why the
scientist cannot be recorded as an intangible asset, as the scientist will
probably provide more value to the company in the future than any of
its other assets. Discuss why the scientist, and employees in general,
who often provide the greatest value for a company, are not recorded
as intangible assets.
31. Think It Through: Research and Development Costs
Jane works in product development for a technology company. She just
heard that her employer is slashing research and development costs.
When she asks why, the marketing senior vice president tells her that
current research and development costs are reducing net income in the
current year for a potential but unknown benefit in future years, and
that management is concerned about the effect on stock price. Jane
wonders why research and development costs are not capitalized so
that the cost would be matched with the future revenues. Why do you
think research and development costs are not capitalized?
32. Your Turn: Classifying Long-Term Assets as Tangible or Intangible
Your cousin started her own business and wants to get a small loan from a local bank to expand production in the next year. The bank
has asked her to prepare a balance sheet, and she is having trouble classifying the assets properly. Help her sort through the list
below and note the assets that are tangible long-term assets and those that are intangible long-term assets.
• Cash
• Patent
• Accounts Receivable
• Land
• Investments
• Software
• Inventory
• Note Receivable
• Machinery
• Equipment
• Marketable Securities
• Owner Capital
• Copyright
• Building
• Accounts Payable
• Mortgage Payable
33. Sample Problem
PA9. For each of the following unrelated situations, calculate the
annual amortization expense and prepare a journal entry to record the
expense:
A. A patent with a ten-year remaining legal life was purchased for
$300,000. The patent will be usable for another eight years.
B. A patent was acquired on a new smartphone. The cost of the patent
itself was only $24,000, but the market value of the patent is
$600,000. The company expects to be able to use this patent for all
twenty years of its life.
34. Module 11.2 Analyze and Classify Capitalized Costs versus Expenses
Long-term asset major categories:
• Property, plant, and equipment (fixed assets)
• Asset that will be used in the business’s daily operation for years
• Capitalized: asset is recorded as an asset and the cost is allocated over time
through an expense account (i.e., depreciation expense) on the income
statement
• Investments
• Asset that is not used in the day-to-day operations of the business
• The company does not expect to use up the asset over time; rather the
company hopes that the asset (investment) would grow in value over time.
• Investments can be current or long-term assets.
35. Long-Term Asset Major Categories (continued)
• Repair and maintenance costs
• Costs to keep an asset in working order
• Expensed as incurred
• Any adjustment/repair that does not extend the useful life of the asset
beyond the original estimate, increase the capacity of the asset, or improve
the quality of the asset is expensed.
• If the adjustment/repair extends the useful life, increases the capacity of the
asset, or improves the quality of the asset, that cost is capitalized and
depreciated over the asset’s remaining life.
36. Your Turn: Classifying Assets and Related Expenditures
You work at a business consulting firm. Your new colleague, Marielena, is helping a client
organize his accounting records by types of assets and expenditures. Marielena is a bit
stumped on how to classify certain assets and related expenditures, such as capitalized
costs versus expenses. She has given you the following list and asked for your help to sort
through it. Help her classify the expenditures as either capitalized or expensed, and note
which assets are property, plant, and equipment.
Expenditures:
• normal repair and maintenance on the manufacturing facility
• cost of taxes on new equipment used in business operations
• shipping costs on new equipment used in business operations
• cost of a minor repair on existing equipment used in business operations
Assets:
• land next to the production facility held for use next year as a place to build a warehouse
• land held for future resale when the value increases
• equipment used in the production process
37. Sample Exercise
EA2. Jada Company had the following transactions during the year:
• Purchased a machine for $500,000 using a long-term note to finance it
• Paid $500 for ordinary repair
• Purchased a patent for $45,000 cash
• Paid $200,000 cash for addition to an existing building
• Paid $60,000 for monthly salaries
• Paid $250 for routine maintenance on equipment
• Paid $10,000 for extraordinary repairs
• If all transactions were recorded properly, what amount did Jada capitalize
for the year, and what amount did Jada expense for the year?
38. Think It Through: Correcting Errors in Classifying Assets
You work at a business consulting firm. Your new colleague, Marielena, helped a client organize his accounting
records last year by types of assets and expenditures. Even though Marielena was a bit stumped on how to
classify certain assets and related expenditures, such as capitalized costs versus expenses, she did not come to
you or any other more experienced colleagues for help. Instead, she made the following classifications and
gave them to the client who used this as the basis for accounting transactions over the last year. Thankfully,
you have been asked this year to help prepare the client’s financial reports and correct errors that were made.
Explain what impact these errors would have had over the last year and how you will correct them so you can
prepare accurate financial statements.
Expenditures:
• Normal repair and maintenance on the manufacturing facility were capitalized.
• The cost of taxes on new equipment used in business operations was expensed.
• The shipping costs on new equipment used in business operations were expensed.
• The cost of a minor repair on existing equipment used in business operations was capitalized.
Assets:
• Land next to the production facility held for use next year as a place to build a warehouse was depreciated.
• Land held for future resale when the value increases was classified as Property, Plant, and Equipment but
not depreciated.
• Equipment used in the production process was classified as an investment.
39. Sample Problem
PA1. Selected accounts from Phipps Corporation’s trial balance are as
follows. Prepare the assets section of the company’s balance sheet.
40. Module 11.3 Explain and Apply Depreciation Methods to Allocate
Capitalized Costs
• Depreciation: the process of allocating the cost of a tangible asset to
the periods in which that asset will be used to generate revenues
• There are several methods and we look at:
• Straight-line
• Units-of-production
• Double-declining-balance
• Depletion: the process of allocating the cost of natural resource to
the periods in which that natural resource will produce revenues
• Amortization: the process of allocating the cost of an intangible asset
to the periods (useful or legal life) in which that intangible asset will
be used to generate revenues
41. Recording the Initial Purchase of an Asset
Assets are recorded at cost, which means all the costs necessary to get
the asset ready for its intended use. Examples of these costs are:
• Invoice price
• Shipping
• Taxes
• Set up
• Calibration
42. Liam purchased his silk-screening machine for $5,000 by paying $1,000
cash and the remainder in a note payable over five years.
Equipment is recorded as an asset, not an expense.
Modified for PPT.
43. Components for Calculating Depreciation
• Book value: the asset’s original cost less accumulated depreciation
• Useful life: the length of time the asset will be productively used within
operations
• Salvage (residual) value: the price the asset will sell for or be worth as a
trade-in when its useful life expires
• Depreciable base (cost): the cost of the asset minus the salvage value, or
the depreciation expense over the asset’s useful life
• Example: A truck was purchased for $10,000; $3,000 of depreciation has been
recorded so far. The truck has a useful life of 6 years and a salvage value of $1,000.
What is the depreciable base? What is the book value at this time? Book value =
$10,000 – $3,000 = $7,000
• Depreciable base = $10,000 – $1,000 = $9,000
44. • Depreciation is recorded as follows, regardless of the method used to
calculate the amount of the expense.
• Accumulated depreciation is a contra account to the asset account.
• Is used to offset the main account balance
• Records the total depreciation expense for a fixed asset over its life
• The asset account stays recorded at the historical value.
• Accumulated depreciation is subtracted from the historical cost of the
asset on the balance sheet to show the asset at book value.
46. Kenzie Company bought a printing press for $54,000. Kenzie pays
shipping costs of $1,500 and setup costs of $2,500, assuming a useful
life of five years or 960,000 pages. Based on experience, Kenzie
Company anticipates a salvage value of $10,000. What is the
depreciable base?
47. • Straight-line depreciation is a method of depreciation that evenly
splits the depreciable amount across the useful life of the asset.
• The cost of the printing press for Kenzie was $58,000 and the salvage
value was $10,000, giving a depreciable base of $48,000. The asset
has a five-year life; therefore, depreciation using the straight-line
method would be:
Straight-Line Depreciation
cost salvage
life
$58,000 $10,000
= $9,600 per year
5
48. The journal entry to record depreciation expense in the first year is:
The balance sheet at the end of the first year would show:
49. The journal entry to record depreciation expense in the second year is:
The balance sheet at the end of the second year would show:
Year 1 $ 9,600
+ Year 2 $ 9,600
$19,200
Modified for PPT.
50. Units-of-Production Depreciation
• Units-of-production depreciation method bases depreciation on the actual usage of the
asset.
• The cost of the printing press for Kenzie was $58,000 and the salvage value was $10,000,
giving a depreciable base of $48,000. The asset has a five-year life or 960,000 pages.
During the first year, the machine printed 180,000 pages. Depreciation using the units-of-
production method would be:
cost salvage
depreciation rate per unit =
estimated total units
$58,000 $10,000
=
960,000 pages
= $0.05 per page
depreciation expense = actual units produced for period depreciation rate per unit
= 180,000 $0.05 per page
= $9,000
51. Double-Declining-Balance Depreciation
• Double-declining-balance method accounts for both time and usage and takes more expense in
the first few years of the asset’s life. A depreciation rate is computed, and that rate is applied to
the book value of the asset each year.
• The cost of the printing press for Kenzie was $58,000 and the salvage value was $10,000, giving a
depreciable base of $48,000. The asset has a five-year life or 960,000 pages. During the first year,
the machine printed 180,000 pages. Depreciation using the double-declining-balance method
would be:
double declining balance (DDB) rate = 2/life
= 2/5
= 40% per year
depreciation expense year 1 = DDB rate book value year 1
= 40% $58,000
= $23,200
53. Sample Exercise
EA7. Alfredo Company purchased a new 3-D printer for $900,000.
Although this printer is expected to last for ten years, Alfredo knows
the technology will become old quickly, and so they plan to replace this
printer in three years. At that point, Alfredo believes it will be able to
sell the printer for $15,000. Calculate yearly depreciation using the
double-declining-balance method.
54. Same expense per year Expense based on usage Expense more quickly
Same total depreciation under either method
Five-Year Comparison of the Three Methods
Modified for PPT.
55. Think It Through: Choosing Appropriate Depreciation Methods
You are part of a team reviewing the financial statements of a new computer
company. Looking over the fixed assets accounts, one long-term tangible
asset sticks out. It is labeled “USB” and valued at $10,000. You ask the
company’s accountant for more detail, and he explains that the asset is a
USB drive that holds the original coding for a game the company developed
during the year. The company expects the game to be fairly popular for the
next few years, and then sales are expected to trail off. Because of this, they
are planning on depreciating this asset over the next five years using the
double-declining method. Does this recording seem appropriate, or is there a
better way to categorize the asset? How should this asset be expensed over
time?
56. Think It Through: Deciding on a Depreciation Method
Liam is struggling to determine which deprecation method he should
use for his new silk-screening machine. He expects sales to increase
over the next five years. He also expects (hopes) that in two years he
will need to buy a second silk-screening machine to keep up with the
demand for products of his growing company. Which depreciation
method makes more sense for Liam: higher expenses in the first few
years, or keeping expenses consistent over time? Or would it be better
for him to not think in terms of time, but rather in the usage of the
machine?
57. Your Turn: Calculating Depreciation Costs
Liam buys his silk screen machine for $10,000. He estimates that he can
use this machine for five years or 100,000 presses, and that the
machine will only be worth $1,000 at the end of its life. He also
estimates that he will make 20,000 clothing items in year one and
30,000 clothing items in year two. Determine Liam’s depreciation costs
for his first two years of business under straight-line, units-of-
production, and double-declining-balance methods. Also, record the
journal entries.
58. Module 11.4 Describe Accounting for Intangible Assets and Record
Related Transactions
Intangible assets
• Purchased intangibles are recorded at their acquisition cost.
• Amortized over the useful or legal life of the asset
• Internally generated intangibles are expensed as the costs are incurred.
• An exception is legal costs to register or defend an intangible asset. These costs are
capitalized and amortized.
• Intangible assets are typically amortized using the straight-line method.
• There is typically no salvage value, and no accumulated amortization
account is needed.
• Certain intangible assets are restricted and given limited life spans, while
others are infinite in their economic life and not amortized.
59. While copyrights have a finite life span of 70 years beyond the author’s
death, they are amortized over their estimated useful life.
• Example: If a company acquired a copyright on a new graphic novel
for $10,000 and estimated it would be able to sell that graphic novel
for the next ten years, then the company would record the following.
Copyrights
60. Patents have a finite life span of 50 years, but often they are amortized
over their estimated useful life.
• Example: Mech Tech purchased the patent for a new pump system.
The patent cost $20,000, and the company expects the pump to be a
useful product for the next twenty years. Mech Tech will then
amortize the $20,000 over the next twenty years, which is $1,000 a
year.
Patents
61. The purchase of goodwill occurs when one company buys another
company for an amount greater than the total value of the company’s
net assets.
• Example: The London Hoops professional basketball team was sold
for $10 million. The new owner received net assets of $7 million, so
the goodwill (value of the London Hoops above its net assets) is $3
million.
Goodwill is not amortized, however, it can be written down or written
off due to permanent impairment.
Goodwill
62. If the new owner of London Hoops assesses that London Hoops now
has a fair value of $9,000,000 rather than the $10,000,000 of the
original purchase, the owner would need to record the impairment as
shown.
63. Sample Problem
PA9. For each of the following unrelated situations, calculate the
annual amortization expense and prepare a journal entry to record the
expense:
A. A patent with a ten-year remaining legal life was purchased for
$300,000. The patent will be usable for another eight years.
B. A patent was acquired on a new smartphone. The cost of the patent
itself was only $24,000, but the market value of the patent is
$600,000. The company expects to be able to use this patent for all
twenty years of its life.
Editor's Notes
Teacher Notes: Ask students why companies are willing to extend credit to customers even though they know some customers may not pay.
Teacher Notes: An exception to using the direct write-off method is if the results would not be substantially different than the company would get if they used the allowance method. Thus, a company that has very few credit sales could use the direct write-off method.
Teacher Notes: An exception to using the direct write-off method is if the results would not be substantially different than the company would get if it used the allowance method. Thus, a company that has very few credit sales could use the direct write-off method.
Teacher Notes: An exception to using the direct write-off method is if the results would not be substantially different than the company would get if it used the allowance method. Thus, a company that has very few credit sales could use the direct write-off method.
Teacher Notes: The $85,200 total is the net realizable value, or the amount of accounts anticipated to be collected. However, the company is owed $90,000 and will still try to collect the entire $90,000 and not just the $85,200.
Teacher Notes: As the amount of accounts receivables changes, the estimated uncollectible accounts will change as well.
Teacher Notes: Allowance for Doubtful Accounts decreases (debit) and Accounts Receivable for the specific customer also decreases (credit). Allowance for doubtful accounts decreases because the bad debt amount is no longer unclear. Accounts receivable decreases because there is an assumption that no debt will be collected on the identified customer’s account. The first entry reverses the previous entry where bad debt was written off. This reinstatement requires Accounts Receivable: Customer to increase (debit), and Allowance for Doubtful Accounts to increase (credit). The second entry records the payment on the account. Cash increases (debit) and Accounts Receivable: Customer decreases (credit) for the amount received.
Teacher Notes: The balance in the allowance for doubtful accounts should represent the part of the total accounts receivable that the company feels may be uncollectible. Some of those sales occurred this period, and some occurred in the prior period.
Teacher Notes: Although our discussion considers inventory issues from the perspective of a retail company, using a resale or merchandising operation, inventory accounting also encompasses recording and reporting of manufacturing operations. In the manufacturing environment, there would be separate inventory calculations for the various process levels of inventory, such as raw materials, work in process, and finished goods. The manufacturer’s finished goods inventory is equivalent to the merchandiser’s inventory account in that it includes finished goods that are available for sale.
Teacher Notes: With the perpetual method, the inventory account is adjusted each time inventory is purchased or sold. With the periodic method, the inventory account is only adjusted “periodically,” which could be monthly, quarterly, or annually.
Figure F11_01_CBShts
Teacher Notes: Research and development costs are recorded as expenses as incurred based on US GAAP. With IFRS, the R is expensed, and the D is capitalized.
Teacher Notes: The determination of salvage value can be an inexact science, since it requires anticipating what will occur in the future. Often, the salvage value is estimated based on past experiences with similar assets.
Teacher Notes: Notice that the asset is fully depreciated prior to the end of its useful life. An asset is only depreciated up to its salvage (residual) value.