Gerald Company had the following account balances for 2021. December 31 January 1 Accounts payable 500,000 650,000 Inventory 300,000 250,000 Accounts receivable 800,000 900,000 Prepaid expenses 400,000 600,000 All sales and purchases of inventory were on account. Depreciation expense of P900,000 was recognized during 2021. Equipment was sold during 2021 and a gain of P300,000 was recognized. The entity provided the following cash flow information for 2021: Cash collected from customers 9,500,000 Cash paid to suppliers 4,100,000 Cash paid for other expenses 1,400,000 What is the net income under accrual basis? What is the net income under cash basis?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Gerald Company had the following account balances for 2021.
|
|
December 31 |
January 1 |
|
Accounts payable |
500,000 |
650,000 |
|
Inventory |
300,000 |
250,000 |
|
|
800,000 |
900,000 |
|
Prepaid expenses |
400,000 |
600,000 |
- All sales and purchases of inventory were on account.
Depreciation expense of P900,000 was recognized during 2021.- Equipment was sold during 2021 and a gain of P300,000 was recognized.
The entity provided the following
|
Cash collected from customers |
9,500,000 |
|
Cash paid to suppliers |
4,100,000 |
|
Cash paid for other expenses |
1,400,000 |
What is the net income under accrual basis?
What is the net income under cash basis?
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