Page 1 Adjusting the Books

Page 2 Adjustments Adjustments : Accounting changes to ensure that account balances are correct. The “books” are adjusted to make sure that the financial statements are accurate.

Page 3 Prepaid Expenses Any prepaid expense (rent, insurance, office supplies) considered to be CURRENT ASSETS. recorded on the BALANCE SHEET. When used up, the expenses are recorded on INCOME STATEMENT. SEE PAGE

Page 4 Depreciation Depreciation: allocation of the cost of a fixed asset to the fiscal periods in which it is used. (page )  an expense  on the income statement.  Can be called amortization.  corresponding account “Accumulated Depreciation” to be recorded on the Balance Sheet.

Page 5 Contra Accounts A contra account: offsets value of another account  Can be called valuation accounts.  include accounts like Accumulated Depreciation.  SEE PG 209

Page 6 What types of accounts do we know?? Asset Liability Owner’s Equity Expense Revenue Contra←This one is NEW!!

Page 7 Methods of Calculation Depreciation (pg ) Straight-Line Method:  Allocates the same amount of depreciation to each fiscal period. (pg 214) Declining-Balance Method:  Allocates a greater amount of depreciation to the first years of an assets life.  This is the method that must be used for the purposed of calculating Income Tax in Canada.

Page 8 Principles The Principle of Materiality:  Requires information that could affect user decisions be included when preparing financial statements The Principle of Conservationism:  Requires, where acceptable alternative accounting treatments, accounts choose a method that will result in lower net income and net assets.