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 55

Lesson Objectives:

- Types of loss situations
- When to record journal entries for loss
- Which accounts are used to report loss



Let's finish out the concept of revenue recognition by reviewing losses with the completed contract method. Again, as we reviewed in the last lesson, this method is used for private companies under GAAP standards when there is uncertainty around the costs and collectability of the contract.

When we see losses in gross profit when using this method, it differs from the percentage of completion and other revenue recognition methods because revenue and expenses are not reported until the contract is actually completed.
 
Next, let's review the two types of losses that a company can encounter: loss in a period and loss on the entire contract. We will start with loss in a period.



Since the completed contract is very conservative, if there is a loss showing in the gross profit figure for a certain period, it is not reported, assuming that the contract is still profitable at the time of completion.
 
I won't go through the whole cost template again, but an example of a loss in a period would be if there were a loss of $200,000 in 2013 but the gross profit figures for 2014 and 2015 were positive. In this case, the contract would still be in a profitable position so we would not need to record a journal entry for the loss when using the completed contract method.

If there is loss in a period but not on the contract, we have nothing to record. Although if the company is seeing a loss on the contract, they will need to be transparent about the loss.



When there is a overall loss on the contract, this means there is a negative gross profit figure showing at the end of the contract. Essentially, the costs exceed the price of the contract. The company would need to record the difference between the price of the contract and the total estimated cost in order to show the overall loss on the completed contract.

For example, if there is a $500,000 loss on the contract, the company will need to use a journal entry to record the loss. The debit of $500,000 would be recorded on the loss on contract account and the credit of $500,000 would be recorded on the construction in process account.

The concept of reporting loss using the completed contract method is pretty straightforward; we only need to record journal entries if the entire contract is in a losing position. If there is a loss in a certain period, we are not required to report it because the revenues and expenses are only recorded when the contract is completed. When the contract is still profitable at completion, the loss in the period will not be reported.
 
In the next lesson, we will start reviewing the concept of depreciation.