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Lab · F01 Introduction to Financial Accounting
Accounting Lab
Analyse transactions, record journal entries, post them to the ledger and watch the trial balance and the financial statements update.
Analyse transactions, record journal entries, post them to the ledger and watch the trial balance and the financial statements update.
Everything here happens to Lantern Coffee Co., the fictional catering business that runs through F01 Introduction to Financial Accounting, in its first month of trading, March 2026. Work through the sections in order, or go straight to the one you need: the lab checks every answer and explains what went wrong.
Analyse a transaction
Before an accountant writes a journal entry, they take the transaction apart: which accounts change, whether each goes up or down, which side of the entry it belongs on and by how much, what happens to the accounting equation, and which financial statements will show it. Do the same here, one transaction at a time, and check each part.
Choose Lantern’s fifteen March transactions, its seven month-end adjustments, or a practice set. Practice sets continue Lantern’s story into April at four levels: cash and stock transactions; purchases and sales on account; prepayments, deposits, accruals, dividends and notes; and compound and adjusting entries.
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Record and post
Write the journal entry for each transaction: choose an account for each line and put its amount in the debit or the credit column. When the entry is right it is posted: each line lands in its T-account in the general ledger and the trial balance updates. The equation check stays in view as you scroll, so you can watch the books balance after every entry.
Record Lantern’s March and then its adjustments, and the trial balance reaches the $49,110 that the statements below are built from. Your progress is kept in this browser, so you can stop and come back.
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Statements and closing
The four financial statements, built from the entries you recorded above: the income statement, the statement of changes in equity, the balance sheet and the statement of cash flows (direct method). Net income flows into retained earnings, retained earnings into the balance sheet, and the change in cash ties the cash-flow statement to the Cash account.
Then close the books. Closing entries move revenue, expenses and dividends into retained earnings, through the Income Summary account or directly, so the next month starts with those accounts at zero. The post-closing trial balance lists only balance-sheet accounts.
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How the lab works
The rules the lab applies when it checks your work, and what it leaves out. Lantern Coffee Co., its customers, suppliers and lender, and every amount here are fictional, made up for teaching.
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Debits, credits and normal balances
Every entry has at least one debit and one credit, and total debits equal total credits to the cent. Whether a debit increases or decreases an account depends on the kind of account.
How each kind of account increases, and its normal balance Kind of account Increases with Normal balance Assets Debit Debit Contra assets (accumulated depreciation) Credit Credit Liabilities Credit Credit Common stock, retained earnings Credit Credit Revenue Credit Credit Expenses Debit Debit Dividends Debit Debit A debit is simply the left side of an account: it is not good or bad, and it is not an expense. Expenses and dividends both reduce equity, but dividends are a distribution of profit to shareholders, not a cost of earning revenue, so they never appear on the income statement.
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How your answers are checked
An entry is compared with the answer key account by account, on the net amount: debits minus credits. The order of your lines doesn’t matter, and you can split an account over two lines. Amounts must match to the cent.
Feedback names what went wrong and the rule behind it: an account on the wrong side, a wrong amount, an account that doesn’t change in this transaction, or a kind of account you left out. In Record and post an entry is posted only once it is right, so the trial balance always balances. Choosing “Show the entry” reveals the answer, and that entry no longer counts as right first time.
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Which statements a transaction changes
- Income statement: a revenue or an expense account changes.
- Statement of changes in equity: anything inside equity changes: revenue and expenses (through net income), dividends, common stock.
- Balance sheet: every transaction, because revenue and expenses end up in retained earnings.
- Statement of cash flows: Cash changes.
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Operating, investing or financing
The lab classifies a cash movement by the account on the other side of the entry. Buying or selling long-term assets such as equipment, and lending money to others, is investing. Borrowing and repaying notes, issuing stock and paying dividends is financing. Everything else is operating: cash from customers, and cash paid to suppliers, employees, landlords and insurers, and for interest.
Interest paid is an operating cash flow under US GAAP, which Lantern follows. IAS 7 has let companies reporting under IFRS choose to show interest paid as operating or financing; IFRS 18 amends IAS 7 for periods beginning on or after 1 January 2027 so that most companies show it as financing.
The statement of cash flows uses the direct method: it lists cash received and paid by purpose. Investing and financing that involve no cash, such as equipment bought on credit, are disclosed below it.
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What the lab simplifies
- A small chart of accounts for a service business: no inventory or cost of goods sold, and no income or sales taxes.
- Lantern closes its books every month so that the whole accounting cycle fits into one month. Most businesses close once a year.
- Adjusting entries are given as facts at the end of the month; deciding which ones are needed is taught in the lessons.
- Practice sets are generated by a program from a random seed. Their names and amounts are invented, and every one balances.
- Your progress is kept in this browser only. Clearing your browser’s data clears it.
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Lantern Coffee Co.
A fictional company. Ana Lim starts it on 1 March 2026 with $20,000 of her savings, in exchange for common stock, and a $10,000 loan from Coastline Bank. It caters coffee for offices and events and runs barista-training workshops. It is a corporation and keeps its books on the accrual basis under US GAAP. Because it sells a service, it holds no inventory: beans, milk and cups are supplies, expensed as they are used.
Its March is the case used throughout F01: fifteen transactions, seven adjustments, net income of $990 and total assets of $42,500 at 31 March.