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University of Toronto St. George

Chapter 8Lesson Notes H1 Chapter 8 Completing the Accounting Cycle Students will be excited by the title of this chapter It indicates that the end of a task is near When students complete Chapter 8 they will realize that they can handle the basic cycle of accounting activities that every business does every fiscal year H2 Section 81 The Adjustment Process Juggling the books is an expression used to describe the changing of account balances for unethical reasons Tell students that accountants change account balances at the end of every fiscal year however they do not do it to distort reality but to reflect it more accurately This first section explores new accounting standards teaches students what an adjusting entry is and explains the concepts associated with three items that need adjusting at yearend supplies prepaid expenses and unearned revenue Textbook p 269 1 The concept of accrual accounting should make sense to students if you relate it to the Revenue Recognition principle from Section 52DRAFT2 The importance of financial statement compatability should help explain why precision and accuracy was emphasized when processing transactions and creating financial statements up to this point in the course pp 2692713 To illustrate the importance of adjusting entries roleplay the steps of buying a pencil or other perishable asset Ask students what accounts would be used if they bought a pencil from the store using cash Answer debit Supplies credit Bank Next ask students if the Supplies account should still have a debit balance if the pencil was broken or otherwise unusable Answer There should not be a debit balance in the Supplies account if there are no supplies This simple example will show students that adjusting entries are needed to accurately estimate value as the value of accounts can change without transactions taking place1 Copyright2013 Pearson Canada Inc DRAFT MANUSCRIPTChapter 8Lesson Notes4 Have students record the definition of an adjusting entry Ask them why adjusting entries are important Answer Since they usually affect revenues or expenses they must also affect the bottom line of businessnet income Textbookpp 2702725 Adjusting the Supplies account is relatively straightforward Guide students through the Adjusting Entries for Supplies section Draw on the board the SuppliesTaccount that appears on page 270 Tell the class that although the yearend balance is 15 000 when counted only 3000 of supplies were left Write these balances in theTaccount as follows Supplies6 0004 0003 0002 00015 0003 000DRAFT6 Ask students to explain the discrepancy How could the supplies actually on hand be so much less than the account balance Answer The supplies were used up Perhaps a small portion was lost stolen or damaged7 The balance in the Supplies account does not reflect reality Inform the students that the accounting clerks have done nothing wrong Trying to update the Supplies account every time someone printed a few sheets of paper for example would be silly Yet at some point the account must be updated Ask what this point is Answer fiscal year end8 Students can think of adjusting entries in the following way the unadjusted balance is What Is the inventory account is What Should Be and the supplies expense is The Adjustment Ask students what they need to do to get the Supplies balance from what it is to what it should be Direct students to view the illustration at the bottom of page 2712 Copyright2013 Pearson Canada Inc DRAFT MANUSCRIPT
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