Reaction Paper on Accounting
Chapter 7 Reflection Paper
Financial Accounting
Buildings, machinery, equipment, furniture, fixtures, computers, cars and trucks are examples of assets that will last for more than one year, but will not last indefinitely. These are some examples of long-lived non-monetary assets. When these assets were acquired, the company has made an expenditure. If the company will benefit in the curret period, the cost of the goods are expenses. If the benefits are expected in future periods, the costs are assets during the current period and the expenditures are capitalized. The cost of these non-monetary assets should be matched with the revenues that are obtained from its use in the future periods.
In general there are two types of long-lived assets: the tangible assets and the intangible assets. A tangible asset is an asset that has physical substance. Examples are land, plant and equipment and natural resources. An intangible asset has no physical substance. These will include good will, patent rights and copyrights. Land is not normally amortized because its useful life is assumed to be indefinitely long. Depreciation is process of converting the original cost of plant and equipment assets to expense. Depletion on the other hand is the process of converting the cost of the natural resource assets to expense. If the intangible assets are converted to expense, it is called amortization.
With plant and equipment, betterments or repairs and maintenance can be done. To differentiate, maintenance will keep the asset in good condition but not in a better condition than when it was purchased. On the other hand, betterment makes the asset better or extends its useful life beyond the original estimate of useful life. Thus, betterment is added to the cost of the asset while repair and maintenance costs are considered period costs.
What are the items to be included in the cost of an asset? The cost of a property, plant or equipment includes all expenditures that are
Financial Accounting
Buildings, machinery, equipment, furniture, fixtures, computers, cars and trucks are examples of assets that will last for more than one year, but will not last indefinitely. These are some examples of long-lived non-monetary assets. When these assets were acquired, the company has made an expenditure. If the company will benefit in the curret period, the cost of the goods are expenses. If the benefits are expected in future periods, the costs are assets during the current period and the expenditures are capitalized. The cost of these non-monetary assets should be matched with the revenues that are obtained from its use in the future periods.
In general there are two types of long-lived assets: the tangible assets and the intangible assets. A tangible asset is an asset that has physical substance. Examples are land, plant and equipment and natural resources. An intangible asset has no physical substance. These will include good will, patent rights and copyrights. Land is not normally amortized because its useful life is assumed to be indefinitely long. Depreciation is process of converting the original cost of plant and equipment assets to expense. Depletion on the other hand is the process of converting the cost of the natural resource assets to expense. If the intangible assets are converted to expense, it is called amortization.
With plant and equipment, betterments or repairs and maintenance can be done. To differentiate, maintenance will keep the asset in good condition but not in a better condition than when it was purchased. On the other hand, betterment makes the asset better or extends its useful life beyond the original estimate of useful life. Thus, betterment is added to the cost of the asset while repair and maintenance costs are considered period costs.
What are the items to be included in the cost of an asset? The cost of a property, plant or equipment includes all expenditures that are