The Cost Principle for Recording Plant Assets: Accounting Lecture Notes – 9

Summary

The cost principle for recording plant assets is explained. Students learn how to calculate depreciation and amortization for different types of assets. Several examples show how to record these transactions in journal entries and balance sheets.

The Cost Principle

The cost principle requires companies to record plant assets at their cost. This cost includes all necessary items to make the asset ready for use. The cost is then divided over the useful life of the asset.

Depreciation Methods

Straight-line, units-of-activity, and declining-balance methods are explained. Examples show how to calculate annual depreciation expense for each method. Journal entries record depreciation at the end of the year.

Amortization of Intangibles

Patents and copyrights are amortized over their useful lives. Journal entries record amortization expense at the end of the year. Balance sheets show the net value of intangible assets.

Journal Entries

Examples show how to record transactions for purchasing and amortizing patents and copyrights. Journal entries include the purchase of intangible assets and the recording of amortization expense.

Key terms

Plant assets

Long-term assets used in business operations.

Depreciation

The process of allocating the cost of a plant asset over its useful life.

Amortization

The process of allocating the cost of an intangible asset over its useful life.

Journal entries

Records of financial transactions in accounting books.

Balance sheet

A financial statement showing a company's assets, liabilities, and equity.

Intangible assets

Non-physical assets such as patents and copyrights.

Questions this document helps with

• What costs are included when recording plant assets?
• How is depreciation calculated for different methods?
• What journal entries are made for amortizing intangibles?

Summary written with AI from the document's text.