Accounting Made Simple by 30 Examples

Understand how compound interest grows the balance by adding earned interest to the principal. Using a $10,000 investment at 3% over three years, total interest reaches about $927.

The lecture introduces the FIFO method for inventory, showing how first-in items are allocated to production from three price groups and detailing the costs for 1000 and 350 units.

Apply the weighted average method to determine unit cost by dividing total cost by total items, yielding 91.54 per item, then multiply by the quantity sent to production (1350).

Explore the lifo method and its contrast with fifo, sending last-in items to production first, with prices 150, 100, and 75.

Record a sale with an advance: treat advances as liabilities, close the advance on delivery by debiting advances received and crediting sales, with the remaining balance as receivable.

Learn to calculate final inventory by starting with beginning inventory, adding purchases and transportation costs, and subtracting purchase discounts and cost of goods sold.

Calculate inventory turnover rate from cost of goods sold divided by average inventory, where average inventory is (beginning + ending) / 2, then estimate days as 365 divided by turnover.

Demonstrates recording an investment in available-for-sale securities with a $25,000 cash outlay and recognizing a $200 cash dividend as dividends revenue, including a possible receivable if unpaid.

We examine a purchase of Mediocre Inc by Great Inc, with 20 percent to 50 percent ownership and no majority or voting rights, and record an investment debit of $900,000.

Discover how a majority stake triggers consolidation, uniting a parent and sister companies into consolidated statements with merged assets, liabilities, revenues, and expenses.

Track how daily journal entries accumulate into the general ledger, clarify ledger versus journal entries, and close to the balance sheet, illustrating debit and credit across assets and liabilities.

Demonstrates the declining balance depreciation method: apply 20 percent to a $10,000 base (first year $2,000), reduce to $8,000, then continue with 20 percent on the remaining balance.

Record a 20 percent cash dividend on 150,000 shares by debiting retained earnings for 30,000 and crediting dividends payable. This entry shifts equity to a short term liability before payment.

Calculate the current ratio by dividing current assets by short-term liabilities to assess the company's short-term payment power. A higher ratio indicates more assets than debts.

Analyze the leverage ratio by comparing total debt to equities to gauge indebtedness and financial performance. Monitor the break-even ratio of one, where two or more signals excessive debt.

Define receivable turnover as how quickly a company collects credit sales, noting factors like loose versus tight credit policy and the net credit sales divided by average accounts receivable.

Learn how the accounts payable turnover ratio—calculated as the average times a company pays its accounts payable balances during a period—signals liquidity, cash flow, and lines of credit.