Full-Cost Method

Definition of 'Full-Cost Method'


An accounting system used by companies that incur exploration costs for oil and natural gas that does not differentiate between operating expenses associated with successful and unsuccessful exploration projects. Regardless of the outcome, successful and unsuccessful operation expenses are capitalized. By contrast, the successful efforts accounting method only capitalizes expenses related to successful ventures.

Investopedia explains 'Full-Cost Method'


The two methods represent conflicting views in the industry about how oil and natural gas companies can most transparently report their earnings, and the two organizations that regulate accounting and financial reporting, the Financial Accounting Standards Board and the Securities and Exchange Commission, cannot always agree on which method is most appropriate.

The choice between these two accounting methods affects the company's reported net income and cash flows, so investors in such companies should be aware of the method used and the differences between the two.



comments powered by Disqus
Hot Definitions
  1. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  2. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  3. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  5. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  6. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
Trading Center