Exercises: From what is recorded to what is accrued

Explain what an adjusting entry is and why it is made before preparing the financial statements. Illustrate it with the case of a stationery shop that paid the full year's insurance in January: what would happen to January's expenses if no adjustment were made?

The company «Limpieza Brillante» bought a delivery van for $\$360,000.00$, with an estimated useful life of $5$ years and no salvage value.

1. a) Compute the annual depreciation using the straight-line method.
2. b) Compute the depreciation for one month.
3. c) Write the adjusting entry for the first month: state the account that is debited (depreciation expense) and the one that is credited (accumulated depreciation), with the amount.

The Financial Reporting Standards (NIF) regulate how financial statements are prepared in Mexico.

1. a) Look it up and explain in your own words what the NIF are and which body issues them in Mexico.
2. b) Explain what they are for: what problem would there be if every company recorded its transactions «its own way»?
3. c) A shop sells merchandise on credit in December and collects the payment in January. Explain the difference between recording the sale on an accrual basis (as the NIF require) and on a cash basis: in which month is the revenue recognized in each case?