"CLEP Financial Accounting," Vocabulary from Chapter 15

This list focuses on depreciation.

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Full list of words from this list:

words only definitions & notes
  1. depreciation
    decrease in value of an asset due to obsolescence or use
  2. accelerate
    move faster
  3. depreciate
    decline in value
  4. simplify
    make easier or reduce in complexity or extent
  5. process
    the performance of some composite cognitive activity
  6. schedule
    a temporally organized plan for matters to be attended to
  7. salvage
    property or goods saved from damage or destruction
  8. modified
    changed in form or character
  9. recovery
    the act of regaining or saving something lost
  10. table
    a set of data arranged in rows and columns
  11. residual
    relating to or indicating a remainder
  12. scrap
    worthless material that is to be disposed of
  13. decline
    go down in value
  14. maximum
    the largest possible quantity
  15. classify
    assign to a category or kind
  16. computation
    the procedure of calculating
  17. option
    one of a number of things from which only one can be chosen
  18. convention
    something regarded as a normative example
    Conventions are assumptions about the purchase dates of fixed assets in order to simplify the depreciation process.
    --Assume all assets purchased during the year were purchased on the first day of the year.
    --Assume all assets purchased within the first 15 days of the month are purchased on the first day of the month. Assume all assets purchased after the 15th are purchased on the first day of the following month.
  19. assumption
    a statement that is held to be true
    Assume all assets purchased within the first 6 months of the fiscal year are purchased on the first day of the year. Assume all assets purchased within the last 6 months of the fiscal year are purchased on the first day of the following year.
  20. assume
    take to be the case or to be true
    --Assume all assets are purchased on the first day of the 7th month of the fiscal year.
    --Assume all assets are purchased on the 15th of the month.
  21. principle
    a rule or standard especially of good behavior
    --The Change-in-Accounting-Estimates Principle allows businesses to change estimates when more accurate information becomes available (but only for current and future years, and not retroactively).
    --The Consistency Principle forbids businesses to change accounting methods from year to year.
  22. formula
    a statement expressing some fundamental principle
    book value at beginning of year x 2 divided by estimated life = depreciation expense for year until book value reaches salvage value (never depreciate an asset below the salvage value)
  23. value
    a numerical quantity measured or assigned or computed
    --historical cost x IRS decimal = depreciation for year (in MACRS method, salvage value = $0)
    --historical cost - salvage value divided by estimated life = depreciation for all years
    --historical cost - salvage value x units this year divided by total estimated units (hours or miles) = this year's depreciation
  24. clue
    evidence that helps to solve a problem
    --Don't confuse the Change-in-Accounting-Estimates Principle with the Consistency Principle. For example, a business may change a machine's useful life, but may not change the method of calculating its depreciation from straight-line to double declining balance.
    --The CLEP exam will not require you to memorize the many IRS tables. Knowing the table for the MACRS depreciation method should help you handle the rest.
  25. information
    a collection of facts from which conclusions may be drawn
    The CLEP exam often gives you information you do not need. If you get a units-of-production question with the useful life in years, just ignore the years. If the CLEP does not give you needed information on the useful life of an asset, guess 5 years for equipment and 7 years for furniture.
Created on November 2, 2016 (updated December 14, 2016)

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