adjusted basis

(noun)

The net cost of an asset after adjusting for various tax-related items.

Related Terms

Examples of adjusted basis in the following topics:

  • Depletion Base

    • When calculating cost depletion for tax purposes, multiply the formula by the property's adjusted basis or the property's historical cost subtracted by depletion expense for prior years.

  • Managing to Prevent Fraud

    • To meet financial goals for the company managers may be tempted to "cook the books. " To help prevent management from adjusting financial statements, an independent auditor should examine financial statements on an annual basis.
    • To meet financial goals for the company managers may be tempted to "cook the books. " To help prevent management from adjusting financial statements, an independent auditor should examine financial statements on an annual basis.

  • LIFO Method

    • Applying LIFO on a perpetual basis during the accounting period, results in different ending inventory and cost of goods sold figures than applying LIFO only at year-end using periodic inventory procedure.
    • For this reason, if LIFO is applied on a perpetual basis during the period, special inventory adjustments are sometimes necessary at year-end to take full advantage of using LIFO for tax purposes.
    • Applying LIFO on a perpetual basis during the accounting period, results in different ending inventory and cost of goods sold figures than applying LIFO only at year-end using periodic inventory procedure.
    • For this reason, if LIFO is applied on a perpetual basis during the period, special inventory adjustments are sometimes necessary at year-end to take full advantage of using LIFO for tax purposes.

  • Preparation of the Statement of Cash Flows: Direct Method

    • In this method, each item on an income statement is converted directly to a cash basis, and each cash effect is directly reported.
    • In the indirect (addback) method for calculating cash flows, the accrual basis net income is established first.
    • This net income is then indirectly adjusted for items that affected the reported net income but did not involve cash.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement) for the following phenomena: changes in current assets (other than cash), changes in current liabilities, and items that were included in net income but did not affect cash.

  • Preparation of the Statement of Cash Flows: Indirect Method

    • The indirect method starts with net-income while adjusting for non-cash transactions and from all cash-based transactions.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement) for:
    • The indirect method uses net income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts for all cash-based transactions.
    • This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement).

  • Recognizing Accounts Receivable

    • If you are operating under the accrual basis, you record account receivable transactions irrespective of any changes in cash.
    • If you are operating under the accrual basis, you record transactions irrespective of any changes in cash.
    • To adjust the allowance account for the new estimate, debit Bad Debt Expense for USD 500 (10,000 *0.05) and credit Allowance for Doubtful Accounts for USD 500.
    • To adjust the allowance account for the new period's estimate, debit Bad Debt Expense for USD 2,000 (20,000 *0.10) and credit Allowance for Doubtful Accounts for USD 2,000.

  • Limited-Life Impairment

    • As a result of the impairment, the amortization expense on the patent should be adjusted to reflect the new value.
    • Intangible assets with a limited-life are amortized on a straight-line basis over their economic or legal life, based on whichever is shorter.
    • Asset amortization for future periods should be adjusted due to the increase in value.

  • Loss Contingencies

    • The Company has appealed the judgment on the basis of errors in the judge's instructions to the jury and insufficiency of evidence to support the amount of the jury's award.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement).

  • Reasons for a Conceptual Framework

    • FASB's Conceptual Framework, a project begun in 1973 to develop a sound theoretical basis for the development of accounting standards in the United States.
    • Navy Petty Officer 3rd Class Channing Connelly, right, uses a laser-guided level to check for proper frame elevation as other Seabees adjust a frame board while working on a building foundation at a patrol base in Mahawil, Iraq, Feb. 4, 2009.

  • Impact of the Operating Cycle on the Income Statement

    • To allow for the fluctuations in the operating cycle, many companies choose to use the accrual basis of accounting.
    • However, the matching principle necessitates the preparation of adjusting entries.
    • Adjusting entries are journal entries made at the end of an accounting period, or at any time financial statements are to be prepared, to bring about a proper matching of revenues and expenses.