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:

- Recording investing activities on the cash flow statement
- How to record financing activities
- Finalizing the cash flow statement balances



Let's finish up the cash flow statement preparation by figuring out how to record the long term investments first and then recording the financing activities of bonds payable and common shares.
 
Let's start off by looking at the balance sheet for the values of equipment and land that will be carried over to the cash flow statement. From 2012 to 2013, the equipment account increased by $32,000 and the land increased by $50,000.



We would first need to add a new section on the cash flow statement for the cash from investing accounts. Next, we would list the purchase of equipment which we would abbreviate as P. Equipment. Since we are increasing the long term asset and using cash, this entry would be considered a use and the $32,000 deducted from the cash flow statement.

The second entry for investing activities would be the land which is also considered an increase in the assets and a use of cash. The $50,000 cash used to purchase the land would also be deducted from the cash flow statement.

To conclude the investing activities section of the cash flow statement, we would total up the two investing entries to give us a negative figure of $ (82,000).
 
Let's proceed to the final section of the cash flow statement to record the financing activities.



The two items that we will be recording in the financing activities section is the bonds payable and common shares. Let's start with the bonds payable that went up $30,000 from 2012 to 2013 on the balance sheet.
 
We will add a third section for cash from financing and then list the bonds payable as a source. Since the bonds payable is increasing, we would be receiving cash in return from the bond holders. The increase would then be recorded as an increase on the cash flow statement.
 
The next item would be the common shares which increased $100,000 according to the balance sheet. This would also be an increase in cash as a result of the common shares issued by the company, therefore we are recording a source. The $100,000 would be added on the cash flow statement.

We would total the amounts of the bonds payable and common shares issued to come up with a total amount for cash from financing of $130,000.



The final step of the cash flow statement, is to come up with the change in cash and beginning and ending cash balances. The change in cash is calculated by summing up the three sections of cash from operating, cash from investing and cash from financing. This would give us a change in cash of $258,000. The cash at the beginning was $0 and the cash at the ending cash balance would be $258,000.

This example concludes the end of the cash flow statement preparation and hopefully now you have a better understanding of how a cash flow statement is created.