Accounting 162 - Material 002

Accounting 162 – Material 002
The following information pertains to

ABC’s depreciable assets:
1. Machine A was purchased for
P150,000 on January 1, 2013. The
entire cost was expensed in the year
of acquisition. The
estimated useful life of this machine is 15
years with no residual value. Prepare the
entry to record the depreciation for the
year
and the entry (if any) to record the
cumulative effect of the change.
2. Machine B cost P525,000 and was
acquired on January 1, 2014. On the
acquisition date, the expected useful life
was 12 years
with no residual value. The straight line
depreciation method was used. On
January 2, 2018, it was estimated that the
remaining
life of the asset would be 4 years and that
there would be a P25,000 residual value.
Prepare the entry to record the
depreciation for
the year and the entry (if any) to record
the cumulative effect of the change.
81,250
3. A building was purchased on January
3, 2015 for P3,000,000. The building was
expected to have a useful life of 20 years
with no
residual value. The straight line
January 1, 2018, a change was made to
the sum-of-the-years’
digit. Prepare the entry to record the
depreciation for the year and the entry (if
any) to record the cumulative effect of
the change.
4. What is the carrying value of machine
B on January 1, 2018? 350,000
5. The book value of the building on
December 31, 2018 is 2,266,66
Accounting 162 – Material 002
The following information pertains to
ABC’s depreciable assets:
1. Machine A was purchased for
P150,000 on January 1, 2013. The
entire cost was expensed in the year
of acquisition. The
estimated useful life of this machine is 15
years with no residual value. Prepare the
entry to record the depreciation for the
year
and the entry (if any) to record the
cumulative effect of the change.
2. Machine B cost P525,000 and was
acquired on January 1, 2014. On the
acquisition date, the expected useful life
was 12 years
with no residual value. The straight line
January 2, 2018, it was estimated that the
remaining
life of the asset would be 4 years and that
there would be a P25,000 residual value.
Prepare the entry to record the
depreciation for
the year and the entry (if any) to record
the cumulative effect of the change.
81,250
3. A building was purchased on January
3, 2015 for P3,000,000. The building was
expected to have a useful life of 20 years
with no
residual value. The straight line
January 1, 2018, a change was made to
the sum-of-the-years’
digit. Prepare the entry to record the
depreciation for the year and the entry (if
any) to record the cumulative effect of
the change.
4. What is the carrying value of machine
B on January 1, 2018? 350,000
5. The book value of the building on
December 31, 2018 is 2,266Accrual
Accounting vs. Cash Basis Accounting: An Overview
The main difference between accrual and cash basis accounting lies in the
timing of when revenue and expenses are recognized. The cash method
is a more immediate recognition of revenue and expenses, while the
accrual method focuses on anticipated revenue and expenses.
KEY TAKEAWAYS
 Accrual accounting means revenue and expenses are recognized

and recorded when they occur, while cash basis accounting means
these line items aren't documented until cash exchanges hands.
 Cash basis accounting is easier, but accrual accounting portrays a
more accurate portrait of a company's health by including accounts
payable and accounts receivable.
 The accrual method is the most commonly used method, especially
by publicly-traded companies as it smooths out earnings over time.
Accrual Accounting Method

Revenue is accounted for when it is earned. Typically, revenue is
recorded before any money changes hands. Unlike the cash method, the
accrual method records revenue when a product or service is delivered to
a customer with the expectation that money will be paid in the
future. Expenses of goods and services are recorded despite no cash
being paid out yet for those expenses.
Cash Basis Accounting

Revenue is reported on the income statement only when cash is received.
Expenses are only recorded when cash is paid out. The cash method is
mostly used by small businesses and for personal finances.

Accounting 162 - Material 002

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Accounting 162 - Material 002

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Accounting 162 – Material 002

The following information pertains to

 Accrual accounting means revenue and expenses are recognized

Accrual Accounting Method

Cash Basis Accounting

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