BUSN 70 Lecture Notes - Lecture 35: Income Statement, Accounting Equation, Current Liability
13 Mar 2021
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Document Summary
The process of spreading the costs of long-lived assets such as building and equipment over the total number of accounting periods in which they are expected to be used. A manufacturer that purchases a ,000 machine expected to last about 10 years. Rather than showing an expense of ,000 in the first year and no expense for the item over the next 9 years, manufacturer allowed to depreciation expenses of. ,000/year in each of the next 10 years. Better matches the cost of the equipment to the years the item is used. Depreciation is written off as an expense and book value of the machine is also reduced by ,000. Spreading cost of expense so business doesn"t have to pay it all upfront. The excess of the purchase price over the fair market value of an asset. Accountants record this as a "write off" in the financial report. The market sets the price of what a business is worth.
