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Recognizing Differences

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Recognizing Differences
Brandi Jones
XACC/291
01/25/15
Nathan LePage

Recognizing Differences Every business has assets that aid in keeping their business up and running. Assets are not intended for sale to customers, but instead are used in the operations of a business. It could be anything from property, land improvement, vehicles, equipment, buildings, etc. The cost principle in accounting requires that companies record their assets a cost, which includes all expenses needed to acquire that asset and get it ready for its intended use. Depending on what the asset is helps determine how a company needs to expense it. It is important to be able to recognize the differences between the valuation, depreciation, amortization and depletion of those costs. (Weygandt, Kimmel & Kieso, 2010). Valuation of an asset is the process of determining the value of an asset. This does not mean that the total cost a company spends to acquire an asset and have it ready for operations is the actual value of it. Instead the valuation of an asset is the fair market value of it, which can be quite different than what the actual company spends on it. Things like historical value, current fair market value, current supply and demand, or even values of similar assets might be taken into consideration when determining the actual value. (Farlex Financial Dictionary, 2012). Asset valuation is usually performed prior to the sale of an asset or prior to purchasing insurance for an asset. (Investopedia, 2015). The actual value of a company asset however, does not determine how that asset should be expensed. Depreciation of an asset is the process of allocating the costs of a plant asset to expense over its useful life. To do this, the book level is set with the initial costs the company incurred to acquire the asset, it is then depreciated periodically over...

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