Natural Resources and Depletion definitions Flashcards
Natural Resources and Depletion definitions
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Natural Resources Long-term assets such as oil reserves, forests, or mineral deposits that are physically extracted and depleted over time. Depletion Expense Cost allocated to the portion of a natural resource extracted during a period, similar to depreciation for fixed assets. Units of Production Method Allocation approach based on the quantity of resource extracted, not on time, to determine periodic depletion. Oil Reserve Asset account representing the value of oil deposits acquired for extraction and eventual sale. Accumulated Depletion Contra asset account tracking the total cost of a natural resource that has been allocated as depletion expense. Net Book Value Amount remaining on the books for a natural resource, calculated as original cost minus accumulated depletion. Inventory Method Alternative approach where extracted natural resources are recorded as inventory until sold, rather than as an immediate expense. Depletion Process of allocating the cost of a natural resource to expense as it is physically removed from its source. Contra Asset Account that reduces the value of a related asset, such as accumulated depletion reducing the value of natural resources. Cost of Goods Sold Expense recognized when inventory, such as extracted oil, is sold, reflecting the cost assigned during extraction. Asset Account Ledger used to record the value of owned resources, such as oil reserves or forests, on the balance sheet. Salvage Value Estimated residual value of a natural resource after extraction, often assumed to be zero for resources like oil or minerals. Extraction Physical removal of natural resources from their source, triggering the calculation of depletion expense. Fixed Asset Long-term tangible property such as equipment or buildings, often compared to natural resources in accounting treatment. Purchase Price Total amount paid to acquire a natural resource, forming the basis for subsequent depletion calculations.
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