When Testing a Client's Additions to an Asset for Research

question 54

True/False

When testing a client's additions to an asset for research and development,the auditor must remember that such costs should be amortized over the lesser of their legal lives or useful lives.

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Definitions:

Allowance Method

The allowance method is a technique used to account for bad debts, where a business estimates the portion of receivables that may not be collectible and records it as an expense.

Journal Entry

A record of financial transactions in the accounting records, showing the accounts and amounts to be debited and credited.

Estimated

A calculated approximation or judgement made without complete information, often used in planning or forecasting.

Temporary Account

A temporary account is used to track transactions during an accounting period, which is then transferred to a permanent account at the period's end, such as revenue and expense accounts.