Financial Accounting

0% Complete
0 out of 69 Lessons
0% Complete
0 out of 4 Exams
Previous Lessons
Open Chapter Ch. 1: Basics of Financial Accounting
Lesson #1 Introduction to Financial Accounting
Incomplete Assignment Study Questions for Lesson 1
Lesson #2 Structures of a Business
Incomplete Assignment Study Questions for Lesson 2
Lesson #3 Comparing Internal vs. External Users
Incomplete Assignment Study Questions for Lesson 3
Lesson #4 Business Activities
Incomplete Assignment Study Questions for Lesson 4
Lesson #5 Financial Statements
Incomplete Assignment Study Questions for Lesson 5
Lesson #6 Elements of Financial Accounting
Incomplete Assignment Study Questions for Lesson 6
Open Chapter Ch. 2: Assets, Liability, and Equity
Lesson #7 Assets
Incomplete Assignment Study Questions for Lesson 7
Lesson #8 Liabilities
Incomplete Assignment Study Questions for Lesson 8
Lesson #9 Equity
Incomplete Assignment Study Questions for Lesson 9
Open Chapter Ch. 3: The Double-Entry System and Conceptual Framework
Lesson #10 Accounting Equation
Incomplete Assignment Study Questions for Lesson 10
Lesson #11 Conceptual Framework
Incomplete Assignment Study Questions for Lesson 11
Lesson #12 Double Entry Accounting System
Incomplete Assignment Study Questions for Lesson 12
Lesson #13 Debits and Credits
Incomplete Assignment Study Questions for Lesson 13
Lesson #14 Normal Balances and RED Accounts
Incomplete Assignment Study Questions for Lesson 14
Exam Exam 1
Open Chapter Ch. 4: The Accounting Cycle
Lesson #15 Journalizing and the Accounting Cycle
Incomplete Assignment Study Questions for Lesson 15
Lesson #16 Posting to the General Ledger
Incomplete Assignment Study Questions for Lesson 16
Lesson #17 Trial Balance
Incomplete Assignment Study Questions for Lesson 17
Lesson #18 Adjusting Entries for Accrued Expenses
Incomplete Assignment Study Questions for Lesson 18
Lesson #19 Adjusting Entries for Prepaid Expenses
Incomplete Assignment Study Questions for Lesson 19
Lesson #20 Adjusting Entries for Unearned Revenue
Incomplete Assignment Study Questions for Lesson 20
Lesson #21 Adjusting Entries for Accrued Revenue
Incomplete Assignment Study Questions for Lesson 21
Lesson #22 Adjusting Entries for Amortization and Depreciation
Incomplete Assignment Study Questions for Lesson 22
Lesson #23 Adjusted Trial Balance
Incomplete Assignment Study Questions for Lesson 23
Lesson #24 Preparing the Financial Statements
Incomplete Assignment Study Questions for Lesson 24
Lesson #25 Permanent vs. Temporary Accounts
Incomplete Assignment Study Questions for Lesson 25
Lesson #26 Closing Entries
Incomplete Assignment Study Questions for Lesson 26
Open Chapter Ch. 5: Merchandise Inventory
Lesson #27 Introduction to Merchandise Inventory
Incomplete Assignment Study Questions for Lesson 27
Lesson #28 Periodic vs. Perpetual Inventory Systems
Incomplete Assignment Study Questions for Lesson 28
Lesson #29 Journalizing Purchase Entries
Incomplete Assignment Study Questions for Lesson 29
Lesson #30 Journalizing Sales Transactions
Incomplete Assignment Study Questions for Lesson 30
Lesson #31 Preparing a Multiple-Step Income Statement
Incomplete Assignment Study Questions for Lesson 31
Lesson #32 Periodic Inventory System Purchases
Incomplete Assignment Study Questions for Lesson 32
Lesson #33 Periodic System and the Multiple-Step Accounting System
Incomplete Assignment Study Questions for Lesson 33
Exam Midterm Exam
Open Chapter Ch. 6: Cost Flow Assumptions: FIFO, LIFO, and Average Cost Methods
Lesson #34 Specific Identification Method and Inventory Costing
Incomplete Assignment Study Questions for Lesson 34
Lesson #35 FIFO Method and Inventory Costing
Incomplete Assignment Study Questions for Lesson 35
Lesson #36 Average Cost Method and Inventory Costing
Incomplete Assignment Study Questions for Lesson 36
Lesson #37 The LIFO Method
Incomplete Assignment Study Questions for Lesson 37
Lesson #38 Average Cost Method for the Perpetual System
Incomplete Assignment Study Questions for Lesson 38
Lesson #39 Comparing Inventory Costing Methods
Incomplete Assignment Study Questions for Lesson 39
Open Chapter Ch. 7: Receivables and Bad Debts
Lesson #40 Allowance Method and Uncollectibles
Incomplete Assignment Study Questions for Lesson 40
Lesson #41 The Allowance Method
Incomplete Assignment Study Questions for Lesson 41
Lesson #42 Percentage of Sales Method
Incomplete Assignment Study Questions for Lesson 42
Lesson #43 Percentage of Receivables Method
Incomplete Assignment Study Questions for Lesson 43
Lesson #44 Receivables Method and the Aging Table
Incomplete Assignment Study Questions for Lesson 44
Lesson #45 Write Off Receivables Using the Allowance Method
Incomplete Assignment Study Questions for Lesson 45
Lesson #46 Direct Write-Off Method
Incomplete Assignment Study Questions for Lesson 46
Open Chapter Ch. 8: Revenue Recognition
Lesson #47 Revenue Recognition
Incomplete Assignment Study Questions for Lesson 47
Lesson #48 Revenue Recognition Examples
Incomplete Assignment Study Questions for Lesson 48
Lesson #49 Revenue Recognition and Long Term Contracts
Incomplete Assignment Study Questions for Lesson 49
Lesson #50 Percentage of Completion Method
Incomplete Assignment Study Questions for Lesson 50
Lesson #51 Percentage of Completion Method Journal Entries
Incomplete Assignment Study Questions for Lesson 51
Lesson #52 Percentage of Completion Method and Journalizing Losses
Incomplete Assignment Study Questions for Lesson 52
Lesson #53 Cost Recovery Method
Incomplete Assignment Study Questions for Lesson 53
Lesson #54 Completed Contract Method and Journal Entries
Incomplete Assignment Study Questions for Lesson 54
Lesson #55 Completed Contract Method and Losses
Incomplete Assignment Study Questions for Lesson 55
Exam Exam 3
Open Chapter Ch. 9: Depreciation of Fixed Assets and Gains and Losses
Lesson #56 Depreciation, Amortization and Depletion
Incomplete Assignment Study Questions for Lesson 56
Lesson #57 Straight Line and Declining Balance Methods
Incomplete Assignment Study Questions for Lesson 57
Lesson #58 Straight Line and Double Declining Balance Depreciation Examples
Incomplete Assignment Study Questions for Lesson 58
Lesson #59 Gains and Losses on Disposals of Property, Plant & Equipment
Incomplete Assignment Study Questions for Lesson 59
Open Chapter Ch. 10: Intangible Assets
Lesson #60 Intangible Assets
Incomplete Assignment Study Questions for Lesson 60
Lesson #61 Amortizing Intangible Assets
Incomplete Assignment Study Questions for Lesson 61
Lesson #62 Impairment of Intangible Assets
Incomplete Assignment Study Questions for Lesson 62
Lesson #63 Recording Goodwill, Amortization and Impairment
Incomplete Assignment Study Questions for Lesson 63
Open Chapter Ch. 11: The Indirect Cash Flow Statement
Lesson #64 Preparing a Cash Flow Statement Using the Indirect Method Part 1
Incomplete Assignment Study Questions for Lesson 64
Lesson #65 Cash Flow Statement Using Indirect Method Part 2, Receivables
Incomplete Assignment Study Questions for Lesson 65
Lesson #66 Cash Flow Statement Using Indirect Method Part 3, Inventory
Incomplete Assignment Study Questions for Lesson 66
Lesson #67 Cash Flow Statement Using Indirect Method Part 4, Payables
Incomplete Assignment Study Questions for Lesson 67
Lesson #68 Cash Flow Statement Using Indirect Method Part 5, Non Cash Expenses
Incomplete Assignment Study Questions for Lesson 68
Lesson #69 Cash Flow Statement- Investing and Financing Activities
Incomplete Assignment Study Questions for Lesson 69
Exam Final Exam

Assignments:

Unfinished Assignment Study Questions for Lesson 14

Lesson Objectives:

- Defining normal accounting balances.
- Applying the financial accounting equation.
- Understanding how the RED accounts fit in.
- The normal balances of revenue, expense and dividends



Every account maintains either credit or debit as the normal balance. The fundamental concept is that in order to increase an account with a normal balance of credit, the company would use a credit.
 
This also works the same way with a normal balance of debit, as a debit is used to increase the account.
 
The normal balance is basically what defines whether we should credit or debit the specific account in order to increase the balance.



Now let's look at what the normal balance is for each type of account that falls within the accounting equation.
 
The easiest way to remember this is to think of the accounting equation as having two sides, each with a different normal balance. The left side of assets are increased using debits while the right side of the equation is increased by credits.
 
The above graphic further demonstrates the normal balance and whether you need to use a debit or credit to increase or decrease the account.

Assets have a normal balance of debit, meaning a debit is used to increase the accounts. In contrast, liabilities and equities have a normal balance of credit.



While assets, liabilities and equity are the main types of accounting elements, there are specific types of accounts that fall into each category. Assets involve cash, supplies, intellectual property and equipment. Liabilities involve long term debts, accounts payable, salaries payable and taxes. Equity accounts include common shares, preferred shares and dividends.

Take a look at the table above to see some additional examples of each account type.



As you can see from the above acronym, RED stands for revenues, expenses and dividends.
 
Here is what each means and how the normal balances are applied.
 
Revenues are associated with equity accounts as they have an indirect relationship with retained earnings. This simply means that when revenues increase the amount of income that the company receives also increases. More income also translates into more retained earnings which can either be distributed to shareholders or kept as equity. Revenues have a normal balance of a credit. To increase the revenue accounts, they must be credited.

Expenses are an essential part of every business as they are needed for operations but they do lessen the income that the company receives. In contrast of revenues, expenses lead to a reduction in income and subsequently a decrease in retained earnings and equity. This also means that the normal balance for expenses are a debit, because in order to increase the expense, they must be debited.
 
Dividends are the income that is disbursed to shareholders after taxes. When dividends are issued, the level of retained earnings and equity is reduced because the income is being paid out instead of kept as equity. Again, since the amount is being reduced, the normal balance is a debit.