Ordinary Repairs vs. Capital Improvements definitions Flashcards
Ordinary Repairs vs. Capital Improvements definitions
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Ordinary Repairs Routine maintenance costs necessary to keep a fixed asset operational, typically expensed immediately on the income statement. Capital Improvements Expenditures that enhance or extend the useful life or capacity of a fixed asset, added to the asset's value on the balance sheet. Fixed Assets Long-term tangible resources used in business operations, such as machinery or vehicles, subject to maintenance and improvements. Income Statement Financial report where expenses like ordinary repairs are recorded, reflecting a company's profitability over a period. Balance Sheet Financial statement showing a company's assets, liabilities, and equity, where capital improvements are capitalized. Maintenance Expense Cost category for routine upkeep of assets, such as greasing gears, directly reducing net income in the period incurred. Depreciation Systematic allocation of the cost of a fixed asset, including capital improvements, over its useful life. Useful Life Estimated period during which a fixed asset is expected to be productive for its intended purpose. Asset Value Monetary worth of a fixed asset on the balance sheet, increased by capital improvements. Journal Entry Accounting record documenting transactions, such as expensing repairs or capitalizing improvements. Modification Alteration to a fixed asset that increases its output or extends its life, typically treated as a capital improvement. Capacity Maximum output or productivity level of a fixed asset, which can be increased through capital improvements. Expense Outflow of resources recognized on the income statement, such as costs for ordinary repairs or maintenance. Cash Asset used to pay for both ordinary repairs and capital improvements, credited in related journal entries. Machinery Example of a fixed asset subject to both ordinary repairs and capital improvements in business operations.