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Classified Balance Sheet
An expansion of the report form balance sheet. It separates the assets into current and long term assets, and provides additional details about the net worth and liabilities of your business
Format of Classified balance sheet
Current Assets
Long term Assets
Current Liabilities
Long Term Liabilities
Steps to creating a classified balance sheet
Who, What, When
Current assets - items that can be converted into cash within a year (Cash, AR, Supplies, Prepaid Insurance)
Long Term Assets - Items that can last longer then a year (Equipment, land, building)
Current Liabilities - Due within a year (HST payable or AP)
Long Term Liabilities - Take more then a year to pay off (Mortgage or Bank Loan)
Equity Section - List same as previous unit (initial capital, net income - drawings, increase in capital based off net income - drawings, new capital)
Adjustment Process
Makes sure that…
Account balances are up to date
Late transactions are accounted for
Accounting Gapps have been followed correctly
Calculations have been made correctly
Adjusting Entry
A journal entry that divides a revenue or expense over several fiscal periods
Adjusting Entry for Prepaid Expense
initially recorded as an asset then changed to expenses once used
Insurance, Advertising, Rent, Supplies
Adjusting Entries for Late-Arriving Purchase Invoices
Goods and services are sometimes bought near the end of a fiscal period and are billed during the next fiscal period (matching principal)
Adjusting Entry for Unearned Revenue
A liability as its a service owed to a customer
Worksheets
We use a worksheet to help organize all accounts
Used as an informal business paper to organize and plan data used for creating financial statements
Depreciation
When a long term asset loses its value. Another name is Amortization when its value is reduced to nothing
Methods for calculating Depreciation
Straight line method:
Depreciation per year = Cost of asset - salvage value /2
Sometimes a product can be bought on April 1st in which case it would first have to be depreciated 9 months:
Depreciation per year/12 the x 9
Accumulated depreciation & Depreciation expense
Depreciation expense (Income Statement) (DR)- Represents the depreciation in this year
Accumulated depreciation (Balance sheet) (CR) - represents all the depreciation of an asset from the previous fiscal year
Declining Balance Depreciation
Assumes an asset. was used more during the early stages of its life (first year)
Formula:
Capital Cost x CCA rate
CCA - Capital Cost Allowance
Use Accumulated depreciation & Depreciation expense the same as on the straight line method
Why use declining Balance Depreciation
More accurate for assets used more during first years
Less net income in early years (less taxes) but more income later years (More taxes)
The half year rule
Allows for companies to take half of an assets depreciation. (Only declining balance depriciation)
Real Accounts
Accounts that will transfer into the next fiscal period:
Assets
Liability
Capital
Nominal Accounts
Accounts that will not transfer into the next fiscal period:
Revenue
Expenses
Drawings