Financial statement effects for manufacturing versus service organizations

The following financial statements model shows the effects of recognizing depreciation in two different circumstances. One circumstance represents recognizing depreciation on a machine used in a factory. The other circumstance recognizes depreciation on computers used in a consulting firm. The effects of each event have been recorded using the letter (I) to represent increase, (D) for decrease, and (NA) for no effect.

Assets

Equity

Event
No.

Cash

+

Inventory

+

Manuf.
Equip.

+

Office
Furn.

=

Com.
Stk.

+

Ret.
Earn.

Rev.

Exp.

=

Net Inc.

Cash Flow

1.

NA

I

D

NA

NA

NA

NA

I

D

NA

2.

NA

I

D

NA

NA

NA

NA

NA

NA

NA

Required

a. Identify the event that represents depreciation on the computers.

b. Explain why recognizing depreciation on equipment used in a manufacturing company affects financial statements differently from recognizing depreciation on equipment used in a service organization.