Natural resources

Definition

Natural resources are assets that occur in nature and can be used for economic gain, such as minerals, oil, and forests. In financial accounting, they are considered long-term assets subject to depletion over time.

5 Must Know Facts For Your Next Test

1. Natural resources are initially recorded at their acquisition cost.
2. Depletion is the process used to allocate the cost of natural resources over their useful life.
3. The units-of-production method is commonly used for calculating depletion expenses.
4. Residual value estimates the remaining value of a resource after its useful life.
5. Natural resources must be reported on the balance sheet under long-term assets.

Review Questions

• What method is commonly used to calculate the depletion expense for natural resources?
• How is the initial cost of natural resources recorded in financial statements?
• Where are natural resources reported on the balance sheet?

Related terms

Depreciation:

The allocation of the cost of a tangible asset over its useful life.

Amortization:

The gradual write-off of an intangible asset's cost over its useful life.

Units-of-Production Method: A depreciation method that allocates expense based on actual usage or production levels.