To pass this unit, please study the 15 vocabulary words below.
a term used to show that the reduction of an assets value happens faster at the start of its useful life than at the end
Assets like vehicles lose a lot of value in the first year of their life, which is why accelerated depreciation is such a useful tool.
an accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur
The accountant advised to operate an accrual accounting system for the small start-up, as he said it gave a more accurate picture of the true financial state.
Distribute according to an existing plan
After studying the budget, it was clear that the marketing department had been allocated more than was needed.
The deduction of capital expenses incurred on an intangible asset over a specific period of time
The accounts department started the amortization process as soon as the purchase of the licenses was finalized.
a method of depreciation centred around cost recovery and a constant rate of return upon any asset that is being depreciated
Most production machinery is depreciated using annuity depreciation as it allows the calculation of a per unit produced cost for the asset.
transfer a sum relating to one account to a new column, page, year
When preparing the accounts for each year, you must remember to carry over the balances from the previous year’s depreciation account.
the movement of money into and out of a company, firm or legal entity
When you apply for a bank loan, you will need to provide cash-flow records showing your financial situation.
decided by or because of
Our decision to stop production was determined by poor sales over the past year.
split into equal parts or groups
If you want to know your hourly salary, divide your weekly wage by the number of hours you work.
a lifespan which is limited to a certain number of years, months, weeks or days
Most assets have a finite life, as eventually they will break or need to be replaced.
increase the number of by the power of x
If you multiply two by three, you'll get six.
the current value of an asset shown in the accounting documents
The car was purchased in 2011 for $30,000, now only one year later the net-book value is $22,000, which shows a depreciation rate of $8,000 in year 1.
the amount of money that an asset will be worth at the end of its useful life
The company purchased a $16,000 forklift for use in its warehouse and believes it'll be able to resell the forklift for a salvage value of $1,000 at the end of 8 years.
straight line depreciation
the method for reducing the value of a tangible asset by equal amounts over its useful life
Not having much experience in accounting, he chose the straight line method of depreciation as it appeared to be the easiest to understand.
the method for reducing the value of a tangible asset by a variable percentage depending on how long the asset has been on the books
A lot of people are put off of the sum-of-years-digits method of depreciation as it can seem complicated, but it does have some advantages.