Accounting 11
“Unusual Accounts”
Dermott Crofton
dcrofton@sd62.bc.ca
Unusual Accounts
Most accounts are straight forward… cash is
an asset, a bank loan is a liability, sales is
revenue, rent is an expense, etc.
But some accounts are not as straight
forward ….
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
2
Prepaid Accounts
If a company pays for a product or service
prior to receiving the product or service
(i.e. prepaying)
An account called a prepaid account will be
involved in the transaction.
It is an asset.
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
3
Prepaid Account - Example
A company pays $50 dollars for carpet cleaning
that will be done next Thursday
Cash will be credited (cash is reduced), but an asset called
prepaid cleaning will be debited (increased).
This is an exchange of one asset (cash) for another asset
(prepaid cleaning).
The carpet cleaning will not become an expense until the
work is actually done.
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
4
Contra Accounts
The overriding principle in accounting is to
keep the original cost of assets as much
as possible when using financial
statements.
What happens to assets that depreciate
over time (i.e. become less valuable)?
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
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Contra Accounts
An account called a contra account is used so that
the original value of an asset is maintained. This
allows the financial statements to reflect the net
(or real) value of an asset (not always
obvious/easy to determine) AND show the initial
cost to the company (usually very reliable
information is available)
Example: A computer has lost 50% of its value
(wear and tear, obsolescence, etc.)
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
6
Contra Accounts
Instead of reducing the value of
the asset called Computer
Equipment, a contra account
called Accumulated
Depreciation – Computer
Equipment is used.
In the financial statements, the full
(purchase) price of the asset is
presented, but the amount of
depreciation on the asset (i.e.
how much value it has lost) is
also presented.
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
7
GST (HST) and Contra
Accounts
 When
a company collects a tax like
GST/HST … they collect the money from
the customer and submit it to the
government
 Therefore,
GST Charged on Sales is a
straightforward liability. It represents cash
the company owes to the government.
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
8
GST (HST) and Contra
Accounts
 When
a company pays GST / HST, this is
a refundable tax! The government will
return this money to the company.
 In
a way, GST Paid on Purchases is sort
of an asset, because it represents cash
the government owes the business.
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
9
GST (HST) and Contra
Accounts

The government does not want to receive a big cheque
from every Canadian company AND write a big cheque
to the same companies.

The Government wants companies to subtract the two
accounts and submit/receive the difference.

Because the assumption is made that GST Charged on
Sales is usually greater than GST Paid on Purchases …
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
10
GST Paid on Purchases:
A Contra Liability

Both accounts appear in the Liability section of
the Chart of Accounts and Financial Statements.
 Even though GST Paid on Purchases behaves
like an asset (increases as a debit). It is deemed
a liability because of it is always subtracted from
GST Charged on Sales to determine the net
liability to the government.
 It is considered a contra-liability (it behaves like
an asset but is deemed to be a liability)
Accounting 11 - Dermott Crofton
dcrofton@sd62.bc.ca
11