AC 210 Lecture Notes - Lecture 49: Matching Principle
5 Jun 2018
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Operating Assets Defined
Operating assets are long‐lived assets that are used in normal business operations.
They are not held for resale to customers. Investments in operating assets are essential
to the success of most businesses. There are three major categories of operating
assets: property, plant, and equipment, sometimes referred to as plant assets or fixed
assets; natural resources; and intangible assets. Property, plant, and
equipmentincludes land; land improvements, such as driveways, parking lots, fences,
and similar items that require periodic repair and replacement; buildings; equipment;
vehicles; and furniture. Natural resources, such as timber, fossil fuels, and mineral
deposits, are created by natural processes that may take thousands or even millions of
years to complete. Companies use up natural resources by cutting or extracting them,
so natural resources are sometimes called wasting assets. Intangible assets, which
lack physical substance, may nevertheless provide substantial value to a company.
Patents, copyrights, and trademarks are examples of intangible assets.
According to the matching principle, the costs of operating assets other than land must
be matched with the revenues they help to generate over their useful lives. Allocating
these costs to expense is called depreciation for plant assets, depletion for natural
resources, and amortization for intangible assets. The cost of land is never depreciated
because land is considered to have an unlimited useful life.
Natural resources are usually listed within the property, plant, and equipment category
on the balance sheet. Intangible assets are placed in a separate category.
Digby Pitts Strip Mining Partial Balance Sheet December 31, 20X4
ASSETS
Current
Assets
Cash
$ 16,000
Accounts
Receivable
84,000
Inventory
89,000
Supplies
3,000
Prepaid
Insurance
8,000
Total
Current
Assets
300,000
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