12- 1 preparing a worksheet for a merchandise company chapter 12

12- 1

Preparing a Worksheet for

a Merchandise Company

Chapter 12

12- 2

Learning Objective 1

Figuring adjustments formerchandise inventory, unearned

rent, supplies used, insuranceexpired, depreciation expense,

and salaries accrued.

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Learning Unit 12-1

In a periodic inventory system, inventory is counted at the end of the accounting period.

Adjusting entries are needed to update to this balance.

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Beginning Inventory

Net Purchases

+

Ending Inventory=

Cost of Goods Sold

–

Learning Unit 12-1

Freight-in

+

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Learning Unit 12-1

What are some adjustments for merchandise inventory?

Credit beginning inventory to remove this “old” inventory balance.

Debit ending inventory for the counted and priced amount to leave this balance in the Inventory account.

This is the balance that will be on the balance sheet.

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Learning Unit 12-1

Merchandise InventoryBeginning

Balance19,000

Income SummaryAdjustment

19,000

Adjustment19,000

Adjustment4,000

Adjustment4,000

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First MonthBALANCE SHEETAssetsBeginning inventory$19,000 (assume sold)

First MonthBALANCE SHEETAssetsBeginning inventory$19,000 (assume sold)

Second MonthBALANCE SHEETAssetsBeginning inventory $4,000

Second MonthBALANCE SHEETAssetsBeginning inventory $4,000

INCOME STATEMENTCost of goods soldBeginning inventory $19,000Less ending inventory$4,000

INCOME STATEMENTCost of goods soldBeginning inventory $19,000Less ending inventory$4,000

Learning Unit 12-1

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Learning Unit 12-1

Accounts Affected Category RulesAccounts Affected Category Rules

Merchandise Inventory Asset Dr.Income Summary Cr.Merchandise Inventory Asset Dr.Income Summary Cr.— —

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Learning Unit 12-1

Assume that Martha received $600 in advance for renting a room to an art dealer for three months. Is the $600 considered rental revenue?

No. Unearned Rent is a liability account. This account is used to record rent

payments received from renters in advance.

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Learning Unit 12-1

The rent will not be earned until the months have gone by.

The rental money will be recorded as revenue only after the unit is used for each month.

What accounts will be affected at the end of the month?

Unearned Rent and Revenue

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Learning Unit 12-1

Accounts Affected Category RulesAccounts Affected Category Rules

Unearned Rent Liability Dr. 200 Rental Income Revenue Cr. 200Unearned Rent Liability Dr. 200 Rental Income Revenue Cr. 200

Adjustment for Rent

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Learning Unit 12-1

Accounts Affected Category RulesAccounts Affected Category Rules

Supplies Expense Expense Dr. 500 Supplies Asset Cr. 500Supplies Expense Expense Dr. 500 Supplies Asset Cr. 500

Adjustment for Supplies

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Learning Objective 2

Preparing a worksheet for

a merchandise company.

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Worksheets for merchandise

companies include accounts that aid in accounting for

inventories.

Worksheets for merchandise

companies include accounts that aid in accounting for

inventories.

Worksheets

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Adjusted Income Balance Trial Balance Statement Sheet

Account Title Dr. Cr. Dr. Cr. Dr. Cr.CashMerch.InventoryReceivablesSuppliesEquipmentAccounts payableCapitalSalesSales ReturnsPurchasesPurchases Returns

Totals

4,0651,850

200100

1,200

2001205

8,820

3205,0003,450

508,820

2001,205

1,405

3,450

503,500

4,065

1,850

200100

1,200

7,415

3205,000

5,320 2,095 2,095 3,500 3,500 7,415 7,415

Net income

Worksheet Example

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Learning Unit 12-2

The worksheet provides the information needed to prepare the expanded income statement needed for a merchandising company.

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Learning Unit 12-2

The income statement columns balance with a net income if the columns must have a debit entry to balance them.

The income statement columns balance with a net loss if the columns must have a credit entry to balance.

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Sales revenue $3,450Sales discounts 0Returns and allowances – 200Net sales revenue $3,250Cost of goods sold –1,155Gross profit $2,095

Sales revenue $3,450Sales discounts 0Returns and allowances – 200Net sales revenue $3,250Cost of goods sold –1,155Gross profit $2,095

Learning Unit 12-2

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Gross Profit

–

Operating Expenses

=

Net Income

Learning Unit 12-2

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Perpetual Inventory

The Purchases account, Purchases Returns and Allowance account, and the Purchases Discount account are not used.

Merchandise Inventory is debited when purchases are made.

Merchandise Inventory is credited when sales are made.

Merchandise Inventory is credited for any discounts, returns, or allowances.

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End of Chapter 12