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:

- Defining intangibles
- Types of intangible assets
- Examples of trademarks, copyrights and patents
- Ways that the assets can be recorded



We just finished talking about depreciation, gains and losses, now let's review the accounting concept of intangible assets. When you think of assets, you generally think of property, equipment, vehicles or even financial instruments such as investments.
 
Intangibles are essentially the opposite; they are the types of assets that are not physical items. They cannot be seen or touched. Intangible assets have meaningful value and are often in the form of intellectual property.
 
Let's first detail some examples of the three most common types of intangible assets including trademarks, copyrights and patents, then we will talk about how to journalize them.



A trademark is the right to use a symbol, logo or name. Trademarks are often registered through state or federal offices for intellectual property. The trademark can be renewed every 15 years. Some examples include, the Dominos pizza logo, the name McDonald's or the website name Google.
 
Copyrights are the rights to use work such as music, literature or art. This type of intangible asset lasts for the life of the person who created the work plus 50 years, although this can differ between countries. For example, a song by Coldplay, a book written by Stephen King or a painting by Vincent Van Gogh.
 
Patents are the right to use a product, process or idea. Patents are also renewable and are generally valid for 20 years. Examples of patents include the invention of the artificial heart valve; new varieties of plants and the Amazon 1-click.

Next, let's review the two different ways that intangibles can be recorded: either by purchasing them or creating them.



Purchasing can be recorded by cost or fair value in the case the intangible assets were exchanged. If a patent was purchased for $2,000, the patent would be debited, because it is an asset that is increasing, and cash would be credited, because it is decreasing.
 
Alternatively, if something other than cash was used to acquire the patent such as company stock, the patent would still be recorded as a debit but the common stock would be used as a credit. In this case, the fair value of the intangible asset would be used.

Creating an intangible asset requires the company to expense all costs related to acquiring the assets. For example, research and development of a patent or paying a writer to create work that they own the copyrights to.
 
The only costs that would not be expensed would be direct costs such as legal costs that would be capitalized separately.

To conclude our discussion of intangible assets, there are two types of these assets that determine how the asset is amortized: finite and indefinite. There are finite assets that are used for a limited time period such as 30 years and indefinite assets can be renewed and will be in existence for a continuous amount of time. We will talk more about amortization in the next lesson.