Adjusting Entries: Depreciation definitions Flashcards
Adjusting Entries: Depreciation definitions
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Depreciation Allocation of a long-term asset's cost over its useful life to match expense with annual benefit received. Adjusting Entry Accounting record made at period end to update accounts for events not yet reflected, such as depreciation. Long-term Asset Resource with significant value expected to provide economic benefit over multiple years, like machinery. Useful Life Estimated period an asset is expected to be productive and provide value to a company. Depreciation Expense Annual charge reflecting the portion of an asset's cost allocated to the current accounting period. Accumulated Depreciation Total depreciation recorded against an asset since acquisition, reducing its book value on the balance sheet. Contra Asset Account Account with a balance opposite to its related asset, used to offset and reduce the asset's reported value. Net Book Value Asset's original cost minus accumulated depreciation, representing its current value on the books. Historical Cost Original purchase price of an asset, recorded at acquisition and used as the basis for depreciation. Straight-line Depreciation Method allocating equal depreciation expense to each year of an asset's useful life. Journal Entry Formal accounting record documenting the debit and credit effects of a transaction, such as depreciation. Balance Sheet Financial statement presenting a company's assets, liabilities, and equity at a specific point in time. Income Statement Financial report summarizing revenues and expenses over a period, including depreciation expense. Parent Account Primary account, such as machinery, whose value is adjusted by a related contra account. Debit Balance Normal balance for asset accounts, increased by debits and decreased by credits.
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