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Assets are RESOURCES owned by a company as the result of transactions. Examples of assets are cash, accounts receivable, INVENTORY, prepaid insurance, land, buildings, equipment, trademarks and customer lists purchased from another company, and certain deferred CHARGES.

The term fixed assets generally refers to the long-term assets, tangible assets used in a BUSINESS that are classified as property, plant and equipment. Examples of fixed assets are land, buildings, manufacturing equipment, office equipment, furniture, fixtures, and vehicles. Except for land, the fixed assets are depreciated over their useful lives.

Assets are resources owned by a company as the result of transactions. Examples of assets are cash, accounts receivable, inventory, prepaid insurance, land, buildings, equipment, trademarks and customer lists purchased from another company, and certain deferred charges.

The term fixed assets generally refers to the long-term assets, tangible assets used in a business that are classified as property, plant and equipment. Examples of fixed assets are land, buildings, manufacturing equipment, office equipment, furniture, fixtures, and vehicles. Except for land, the fixed assets are depreciated over their useful lives.

A plant asset is an asset with a USEFUL life of more than one year that is used in producing revenues in a business's operations. Examples of plant assets include land, land improvements, buildings, MACHINERY and equipment, office equipment, furniture, fixtures, vehicles, leasehold improvements, and construction work-in-progress. Plant assets are also referred to as fixed assets and/or property, plant and equipment.

Plant assets are recorded at cost and DEPRECIATION is reported during their useful lives. (However, there is no depreciation of land, and the depreciation for construction work-in-progress begins when the asset is placed into service.) The cumulative amount of depreciation is reported in the contra plant asset account Accumulated Depreciation.

Plant assets and the related accumulated depreciation are reported on a company's balance sheet in the noncurrent asset section entitled property, plant and equipment. ACCOUNTING RULES also require that the plant assets be reviewed for possible impairment losses.

A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business's operations. Examples of plant assets include land, land improvements, buildings, machinery and equipment, office equipment, furniture, fixtures, vehicles, leasehold improvements, and construction work-in-progress. Plant assets are also referred to as fixed assets and/or property, plant and equipment.

Plant assets are recorded at cost and depreciation is reported during their useful lives. (However, there is no depreciation of land, and the depreciation for construction work-in-progress begins when the asset is placed into service.) The cumulative amount of depreciation is reported in the contra plant asset account Accumulated Depreciation.

Plant assets and the related accumulated depreciation are reported on a company's balance sheet in the noncurrent asset section entitled property, plant and equipment. Accounting rules also require that the plant assets be reviewed for possible impairment losses.

In the calculation of depreciation EXPENSE, the salvage VALUE of an asset is an estimated AMOUNT, and the estimated amount is often zero. With the common ASSUMPTION of no salvage value, the ENTIRE cost of an asset used in a business will be depreciated over the asset's useful life.

In the calculation of depreciation expense, the salvage value of an asset is an estimated amount, and the estimated amount is often zero. With the common assumption of no salvage value, the entire cost of an asset used in a business will be depreciated over the asset's useful life.

The book value of an asset is the asset's cost minus the asset's accumulated depreciation. For example, in the general ledger account, Automobile, is the automobile's cost of $22,000. In the contra asset account, Accumulated Depreciation on Automobile, is a credit balance of $16,000. The net of those two amounts ($22,000 minus $16,000) is the book value or the CARRYING value of the automobile. In this example the $6,000 is the amount being reported on the company's books.

You should realize that this book value is not an indication of the market value of the automobile. The market value could be more than $6,000 or it could be less than $6,000. Also don't confuse the accounting book value with the "blue book" or "black book" amounts that are published and show values for AUTOMOBILES.

The term book value is also used when referring to a company's liability, such as Bonds Payable. The book value of bonds would be the maturity value (or par value) in the general ledger account, Bonds Payable, minus any unamortized amount in the account, Discount on Bonds Payable, and minus any unamortized amount in the account Bond Issue Costs. If the bonds were issued at more than their face (or par or maturity) amount, the book value would be the balance in Bonds Payable plus the balance in Premium on Bonds Payable and minus any amount in the account, Bond Issue Costs.

Lastly, book value is used when referring to the TOTAL amount of stockholders' equity appearing on a CORPORATION's balance sheet. Again, this book value is not an indication of the market value of the corporation. It simply INDICATES the amounts appearing on the books for the assets less the amounts appearing for the liabilities. A corporation can be far more valuable than the amount of its book value.

The book value of an asset is the asset's cost minus the asset's accumulated depreciation. For example, in the general ledger account, Automobile, is the automobile's cost of $22,000. In the contra asset account, Accumulated Depreciation on Automobile, is a credit balance of $16,000. The net of those two amounts ($22,000 minus $16,000) is the book value or the carrying value of the automobile. In this example the $6,000 is the amount being reported on the company's books.

You should realize that this book value is not an indication of the market value of the automobile. The market value could be more than $6,000 or it could be less than $6,000. Also don't confuse the accounting book value with the "blue book" or "black book" amounts that are published and show values for automobiles.

The term book value is also used when referring to a company's liability, such as Bonds Payable. The book value of bonds would be the maturity value (or par value) in the general ledger account, Bonds Payable, minus any unamortized amount in the account, Discount on Bonds Payable, and minus any unamortized amount in the account Bond Issue Costs. If the bonds were issued at more than their face (or par or maturity) amount, the book value would be the balance in Bonds Payable plus the balance in Premium on Bonds Payable and minus any amount in the account, Bond Issue Costs.

Lastly, book value is used when referring to the total amount of stockholders' equity appearing on a corporation's balance sheet. Again, this book value is not an indication of the market value of the corporation. It simply indicates the amounts appearing on the books for the assets less the amounts appearing for the liabilities. A corporation can be far more valuable than the amount of its book value.

An asset that is fully depreciated and continues to be used in the business will be reported on the balance sheet at its cost ALONG with its accumulated depreciation. There will be no depreciation EXPENSE RECORDED after the asset is fully depreciated. No entry is REQUIRED until the asset is disposed of through retirement, sale, salvage, etc.

To illustrate this, let's assume that a machine with a cost of $100,000 was expected to have a useful life of five years and no salvage value. The company depreciated the asset at the rate of $20,000 PER year for five years. If the machine is used for three more years, the depreciation expense will be $0 in each of those three years. During those three years, the balance sheet will report its cost of $100,000 and its accumulated depreciation of $100,000 for a book value of $0.

An asset that is fully depreciated and continues to be used in the business will be reported on the balance sheet at its cost along with its accumulated depreciation. There will be no depreciation expense recorded after the asset is fully depreciated. No entry is required until the asset is disposed of through retirement, sale, salvage, etc.

To illustrate this, let's assume that a machine with a cost of $100,000 was expected to have a useful life of five years and no salvage value. The company depreciated the asset at the rate of $20,000 per year for five years. If the machine is used for three more years, the depreciation expense will be $0 in each of those three years. During those three years, the balance sheet will report its cost of $100,000 and its accumulated depreciation of $100,000 for a book value of $0.

To calculate the gain or loss on the sale of an asset, you compare the amount of cash received for the asset to the asset's book (carrying) value at the time of the sale. If the cash received is greater than the asset's book value, the difference is recorded as a gain. If the cash received is less than the asset's book value, the difference is recorded as a loss.

In order to have the book value at the time of the sale, you must record the depreciation expense up to the DATE of the sale.

If the asset is EXCHANGED instead of SOLD, the accounting treatment will OFTEN be DIFFERENT.

To calculate the gain or loss on the sale of an asset, you compare the amount of cash received for the asset to the asset's book (carrying) value at the time of the sale. If the cash received is greater than the asset's book value, the difference is recorded as a gain. If the cash received is less than the asset's book value, the difference is recorded as a loss.

In order to have the book value at the time of the sale, you must record the depreciation expense up to the date of the sale.

If the asset is exchanged instead of sold, the accounting treatment will often be different.

Property, PLANT and equipment is the long term or noncurrent asset SECTION of the balance sheet. Included in this CLASSIFICATION are land, buildings, machinery, office equipment, vehicles, furniture and fixtures used in a business. Also included in property, plant and equipment is the accumulated depreciation for these ASSETS (except for land, which is not depreciated).

The assets reported as property, plant and equipment are described as long-lived, tangible assets. They are also described as fixed assets or as plant assets.

Generally, the property, plant and equipment assets are reported at their COST followed by a deduction for the accumulated depreciation that applies to all of these assets.

Property, plant and equipment is the long term or noncurrent asset section of the balance sheet. Included in this classification are land, buildings, machinery, office equipment, vehicles, furniture and fixtures used in a business. Also included in property, plant and equipment is the accumulated depreciation for these assets (except for land, which is not depreciated).

The assets reported as property, plant and equipment are described as long-lived, tangible assets. They are also described as fixed assets or as plant assets.

Generally, the property, plant and equipment assets are reported at their cost followed by a deduction for the accumulated depreciation that applies to all of these assets.

In accounting we use the word amortization to mean the systematic allocation of a balance sheet item to expense (or revenue) on the income statement. Conceptually, amortization is similar to depreciation and DEPLETION. An example of amortization is the systematic allocation of the balance in the contra-liability account Discount of Bonds PAYABLE to INTEREST Expense over the life of the bonds. (The accountant credits Discount on Bonds Payable and debits Bond Interest Expense with a portion of the balance each accounting period.) In the case of a premium on bonds payable, the accountant systematically MOVES a portion of the balance in Premium on Bonds Payable by debiting the account and crediting Interest Expense.

Amortization also applies to asset balances, such as discount on notes receivable, deferred charges, and some intangible assets.

Amortization is a term used with mortgage loans. For example, a mortgage lender often provides the BORROWER with a loan amortization schedule. This schedule lists each loan payment during the life of the loan, the amount of each payment that is for interest, the amount of each payment that is for principal, and the principal balance after each loan payment. The loan amortization schedule allows the borrower to see how the loan balance will be reduced over the life of the loan.

In accounting we use the word amortization to mean the systematic allocation of a balance sheet item to expense (or revenue) on the income statement. Conceptually, amortization is similar to depreciation and depletion. An example of amortization is the systematic allocation of the balance in the contra-liability account Discount of Bonds Payable to Interest Expense over the life of the bonds. (The accountant credits Discount on Bonds Payable and debits Bond Interest Expense with a portion of the balance each accounting period.) In the case of a premium on bonds payable, the accountant systematically moves a portion of the balance in Premium on Bonds Payable by debiting the account and crediting Interest Expense.

Amortization also applies to asset balances, such as discount on notes receivable, deferred charges, and some intangible assets.

Amortization is a term used with mortgage loans. For example, a mortgage lender often provides the borrower with a loan amortization schedule. This schedule lists each loan payment during the life of the loan, the amount of each payment that is for interest, the amount of each payment that is for principal, and the principal balance after each loan payment. The loan amortization schedule allows the borrower to see how the loan balance will be reduced over the life of the loan.

Construction Work-in-Progress is a long-term asset account in which the COSTS of CONSTRUCTING long-term assets are RECORDED. The account Construction Work-in-Progress will have a debit balance and will be reported on the balance sheet as part of a COMPANY's Property, Plant and Equipment.

The costs of a constructed asset are accumulated in the account Construction Work-in-Progress until the asset is placed into service. When the asset is completed and placed into service, the account Construction Work-in-Progress will be credited for the accumulated costs of the asset and will be debited to the appropriate Property, Plant and Equipment account.

Construction Work-in-Progress is a long-term asset account in which the costs of constructing long-term assets are recorded. The account Construction Work-in-Progress will have a debit balance and will be reported on the balance sheet as part of a company's Property, Plant and Equipment.

The costs of a constructed asset are accumulated in the account Construction Work-in-Progress until the asset is placed into service. When the asset is completed and placed into service, the account Construction Work-in-Progress will be credited for the accumulated costs of the asset and will be debited to the appropriate Property, Plant and Equipment account.

Generally, the difference INVOLVES the "timing" of the depreciation expense on a company's financial statements versus the depreciation expense on the company's income tax return. The depreciation expense in each year will be different, but the total of all of the years' depreciation expense associated with a specific asset will likely add up to the same total—the cost of the asset.

The book depreciation expense is the amount recorded on the "books" and reported on the financial statements. This depreciation is based on the matching PRINCIPLE of accounting. For example, if a machine costs $500,000 and is EXPECTED to be used for 10 years and to have no salvage value at the end of the 10 years, the annual depreciation expense might be $50,000 each year. (This assumes the straight-line method and that the machine was acquired on the first day of an accounting year.) Another company purchasing the same machine might believe that the machine will be useful for only 5 years and have $100,000 salvage value. In that case the company will record $80,000 ($400,000 divided by 5 years) each year. The two companies did their best to match the machine's cost to the accounting periods that the machine is being used to earn revenues.

The tax depreciation is recorded on the company's income tax returns and will be based on the Internal Revenue Service's rules. The IRS might specify that the machine is a 7-year machine regardless of a company's situation. The IRS rules also allow a company to accelerate the depreciation expense. Accelerated depreciation means taking more depreciation in the first few years and less depreciation in the later years of the machine's LIFE. This saves income tax payments in the first few years of the asset's life but will result in more taxes in the later years. Companies that are profitable will find the accelerated depreciation to be attractive.

The accounting and IRS rules allow a company to use the 10-year straight-line assumption for the books and the 7-year accelerated method for the tax return. This leads some people to say the company is keeping two sets of books. Of course, the company must 1) MAINTAIN depreciation records for the book and financial statement depreciation based on the matching principle in accounting, and 2) maintain depreciation records for the tax return based on the IRS rules.

In some situations the IRS allows for the immediate expensing (the entire cost of the asset is deducted from taxable income in the year it is purchased) of assets up to a specific dollar amount. You can learn more about tax depreciation from www.IRS.gov or from a tax adviser.

Generally, the difference involves the "timing" of the depreciation expense on a company's financial statements versus the depreciation expense on the company's income tax return. The depreciation expense in each year will be different, but the total of all of the years' depreciation expense associated with a specific asset will likely add up to the same total—the cost of the asset.

The book depreciation expense is the amount recorded on the "books" and reported on the financial statements. This depreciation is based on the matching principle of accounting. For example, if a machine costs $500,000 and is expected to be used for 10 years and to have no salvage value at the end of the 10 years, the annual depreciation expense might be $50,000 each year. (This assumes the straight-line method and that the machine was acquired on the first day of an accounting year.) Another company purchasing the same machine might believe that the machine will be useful for only 5 years and have $100,000 salvage value. In that case the company will record $80,000 ($400,000 divided by 5 years) each year. The two companies did their best to match the machine's cost to the accounting periods that the machine is being used to earn revenues.

The tax depreciation is recorded on the company's income tax returns and will be based on the Internal Revenue Service's rules. The IRS might specify that the machine is a 7-year machine regardless of a company's situation. The IRS rules also allow a company to accelerate the depreciation expense. Accelerated depreciation means taking more depreciation in the first few years and less depreciation in the later years of the machine's life. This saves income tax payments in the first few years of the asset's life but will result in more taxes in the later years. Companies that are profitable will find the accelerated depreciation to be attractive.

The accounting and IRS rules allow a company to use the 10-year straight-line assumption for the books and the 7-year accelerated method for the tax return. This leads some people to say the company is keeping two sets of books. Of course, the company must 1) maintain depreciation records for the book and financial statement depreciation based on the matching principle in accounting, and 2) maintain depreciation records for the tax return based on the IRS rules.

In some situations the IRS allows for the immediate expensing (the entire cost of the asset is deducted from taxable income in the year it is purchased) of assets up to a specific dollar amount. You can learn more about tax depreciation from www.IRS.gov or from a tax adviser.

Depreciation expense is the allocated portion of the cost of a company's fixed assets that is appropriate for the accounting period indicated on the company's income statement. For instance, if a company had paid $2,400,000 for its office building (excluding land) and the building has an estimated useful LIFE of 40 years, each monthly income statement will report straight-line depreciation expense of $5,000 for 480 months. [However, the allocated cost of the fixed assets USED in MANUFACTURING will be part of the manufacturing overhead which will become part of the cost of the products manufactured.]

Depreciation expense is referred to as a noncash expense because the recurring, monthly depreciation entry (a debit to Depreciation Expense and a credit to Accumulated Depreciation) does not involve a cash PAYMENT. As a result, the statement of cash flows prepared under the indirect method will add depreciation expense to the amount of net income.

The common methods for computing depreciation expense include straight-line, double-declining balance, sum-of-the-years digits, and units of production or activity.

Depreciation expense is the allocated portion of the cost of a company's fixed assets that is appropriate for the accounting period indicated on the company's income statement. For instance, if a company had paid $2,400,000 for its office building (excluding land) and the building has an estimated useful life of 40 years, each monthly income statement will report straight-line depreciation expense of $5,000 for 480 months. [However, the allocated cost of the fixed assets used in manufacturing will be part of the manufacturing overhead which will become part of the cost of the products manufactured.]

Depreciation expense is referred to as a noncash expense because the recurring, monthly depreciation entry (a debit to Depreciation Expense and a credit to Accumulated Depreciation) does not involve a cash payment. As a result, the statement of cash flows prepared under the indirect method will add depreciation expense to the amount of net income.

The common methods for computing depreciation expense include straight-line, double-declining balance, sum-of-the-years digits, and units of production or activity.

Capitalized interest is the interest added to the cost of a self-constructed, long-term asset. It involves the interest on DEBT used to finance the asset's construction.

The details of capitalized interest are explained in the Financial Accounting Standards Board's (FASB) STATEMENT of Financial Accounting Standards No. 34, CAPITALIZATION of Interest Cost. You can find this accounting pronouncement at www.FASB.org/st.

In short, there must be debt involved (CASH and common stock are not considered). The interest specified by the pronouncement is added to the cost of the project, instead of being expensed on the current period's income statement. This capitalized interest will be part of the asset's cost reported on the balance sheet, and will be part of the asset's depreciation expense that will be reported in future income statements.

Capitalized interest is the interest added to the cost of a self-constructed, long-term asset. It involves the interest on debt used to finance the asset's construction.

The details of capitalized interest are explained in the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost. You can find this accounting pronouncement at www.FASB.org/st.

In short, there must be debt involved (cash and common stock are not considered). The interest specified by the pronouncement is added to the cost of the project, instead of being expensed on the current period's income statement. This capitalized interest will be part of the asset's cost reported on the balance sheet, and will be part of the asset's depreciation expense that will be reported in future income statements.

When a fixed asset or plant asset is sold, the asset's depreciation expense MUST be recorded up to the date of the sale. Next, 1) the asset's cost and accumulated depreciation is removed, 2) the amount received is recorded, and 3) any difference is reported as a gain or loss.

Here's an example. A company SELLS one of its machines on January 31 for $5,000. The last time depreciation was recorded was on December 31. Depreciation expense is $400 per month. The general ledger shows the machine's cost was $50,000 and its accumulated depreciation at December 31 was $40,000.

On January 31 the company will debit Depreciation Expense for $400 and will credit Accumulated Depreciation for $400 in order to record the depreciation during January. In its next entry on January 31, the company will debit Cash for $5,000 (the amount received); debit Accumulated Depreciation for $40,400 (the balance at January 31); debit Loss of DISPOSAL of Asset $4,600; and credit Machines for $50,000.

Let's STEP back and review the disposal of the machine. As of January 31, the machine's book value is $9,600 (cost of $50,000 minus its accumulated depreciation of $40,400). Because the asset is sold, the $9,600 of book value or carrying value is removed from the accounts. In its place, the company received and RECORDS the cash of $5,000. Since the company received $4,600 less than the amount it removed, it will report a loss of $4,600.

If the company had received more cash than the asset's book value, it would report the difference as a credit to Gain on Disposal of Asset.

When a fixed asset or plant asset is sold, the asset's depreciation expense must be recorded up to the date of the sale. Next, 1) the asset's cost and accumulated depreciation is removed, 2) the amount received is recorded, and 3) any difference is reported as a gain or loss.

Here's an example. A company sells one of its machines on January 31 for $5,000. The last time depreciation was recorded was on December 31. Depreciation expense is $400 per month. The general ledger shows the machine's cost was $50,000 and its accumulated depreciation at December 31 was $40,000.

On January 31 the company will debit Depreciation Expense for $400 and will credit Accumulated Depreciation for $400 in order to record the depreciation during January. In its next entry on January 31, the company will debit Cash for $5,000 (the amount received); debit Accumulated Depreciation for $40,400 (the balance at January 31); debit Loss of Disposal of Asset $4,600; and credit Machines for $50,000.

Let's step back and review the disposal of the machine. As of January 31, the machine's book value is $9,600 (cost of $50,000 minus its accumulated depreciation of $40,400). Because the asset is sold, the $9,600 of book value or carrying value is removed from the accounts. In its place, the company received and records the cash of $5,000. Since the company received $4,600 less than the amount it removed, it will report a loss of $4,600.

If the company had received more cash than the asset's book value, it would report the difference as a credit to Gain on Disposal of Asset.