Financial Accounting

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

Assignments:

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Lesson Objectives:

- How journal entries feed into posting to the general ledger.
- The purpose of the general ledger
- Posting balances using the T-account format.



We are now on the second step of the accounting cycle: Summarize accounts, General Ledger posting, as shown in the image above.

Think of journal entries as a set of instructions for the general ledger posting as they will define the amounts that you need to record. The general ledger is essentially the compilation of all transactions that have taken place and it allows the company to see the balances for each account.



Journal entries require you to record each transaction by using debits and credits. As we looked at examples in the previous lesson, the journal entries are basically just a listing of all of the transactions that take place in the company. While the company can see the physical reporting of the transactions by looking at the journal entries, it doesn't give them a full picture.
 
What the transaction analysis and journalizing doesn't reflect is the actual balance of each account. For example, after the cash account is debited by a certain amount, we would want to know what the balance is. The same goes for credits, the company needs to be able to look at the balance after the transaction takes place.
 
The general ledger quantifies an ending balance for every account that exists within the company. The analysis and journalizing step is essentially a preface for the second step of posting to the general ledger, as you must know what changes are taking place before you can post the final balances. Any asset account, liability account or equity account will show up on the general ledger as it will show all accounts.

The graphic above gives you an idea of the different types of transactions and accounts that are covered in the general ledger. For the purpose of this lesson, I won't detail each individual account, but I will demonstrate how to post to the general ledger, based on the information from the journal entries. The examples you will see in this lesson are just a glimpse into the many accounts that you will would work with in the real world.



Let's look at three different examples of general ledger entries and I will explain how to post them to their subsequent T-accounts. First, the entries are journalized with the debit and credit amounts as you can see in the table above.
 
Each transaction has a reference number starting with the number 1 for the most liquid asset of cash. These reference numbers will carry over when we put the general ledger information in the T-account format.

The ledger accounts use the T-account format in order to show the balances in all of the accounts. They are called T-accounts because they look just like the letter T. Now, let's post the general ledger entries to their subsequent T-accounts:

As you can see from each example, the debits and credits are carried over from the general ledger to the appropriate side of the T-account format. Debits are always recorded on the left and credits on the right. The total balance is summed up at the bottom of each account with a line on the side that shows a balance.
 
In summary, if the company wants to know the balance of a certain account, they will look to the general ledger T-accounts to determine this information.