Completion of the Accounting Cycle for a Merchandise Company

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Presentation transcript:

Completion of the Accounting Cycle for a Merchandise Company Chapter 12

Preparing financial statements for a merchandise company. Learning Objective 1 Preparing financial statements for a merchandise company.

Learning Unit 12-1 (Preparing Financial Statements) Net sales – Cost of goods sold = Gross profit

Learning Unit 12-1 (Preparing Financial Statements) Gross profit – Operating expenses = Net income from operations

Learning Unit 12-1 (Preparing Financial Statements) Net income from operations + Other income – Other expenses = Net income

Learning Unit 12-1 (Preparing Financial Statements) Art’s Wholesale Clothing Company Statement of Owner’s Equity For Year Ended December 31, 200x Art’s, capital, January 1, 200x $ 7,905 Net income for the year $13,745 Less: Withdrawals for the year 8,600 Increase in capital 5,145 Art’s, capital, December 31, 200x $13,050

Learning Unit 12-1 (Preparing Financial Statements) Art’s Wholesale Clothing Company Classified Balance Sheet December 31, 200X Assets Liabilities Current assets: Current liabilities: Cash $13,020 Accounts payable $17,900 Accounts receivable 14,500 Salary payable 600 Other current assets 4,900 Other payables 2,420 Total current assets $32,420 Total current liabilities $20,920 Mortgage payable 2,000 Plant assets: Owner’s equity: Equipment $4,000 Art Newner, capital $13,050 Less: Accum. dep. 450 3,550 Total liabilities and Total assets $35,970 owner’s equity $35,970

Learning Objective 2 Recording adjusting and closing entries.

Learning Unit 12-2 (Journalizing and Posting) Adjusting entries shown on the worksheet are journalized. Adjusting entries are then posted to the proper accounts.

Learning Unit 12-2 (Journalizing and Posting) All Discount plus Returns and Allowances accounts are temporary accounts that have to be closed. The account Freight-In is also a temporary account that needs to be closed.

Learning Unit 12-2 (Journalizing and Posting) Step 1 Close all balances on the income statement credit column of the worksheet except Income Summary. Close all balances on the income statement debit column of the worksheet except Income Summary. Step 2 8

Learning Unit 12-2 (Journalizing and Posting) Step 3 Transfer the balance of the Income Summary account to the Capital account. Transfer the balance of the Withdrawal account to the Capital account. Step 4 8

Preparing a post-closing Learning Objective 3 Preparing a post-closing trial balance.

Learning Unit 12-2 Example Cash $12,920 Petty cash 100 Accounts receivable 14,500 Inventory 4,000 Supplies 300 Prepaid insurance 600 Equipment 4,000 Total $36,420 Art’s Wholesale Clothing Company Post-closing Trial Balance December 31, 200X

Learning Unit 12-2 Example Art’s Wholesale Clothing Company Post-closing Trial Balance December 31, 200X Accumulated depreciation $ 450 Accounts payable 17,900 Salary payable 600 Other payables 4,420 Art Newner, capital 13,050 Total $36,420

Completing reversing entries. Learning Objective 4 Completing reversing entries.

Reversing Entries An optional way to handling some adjusting entries Increase in an asset account (no previous balance) Increase in a liability account (no previous balance)

Learning Unit 12-3 (Reversing Entries Example) December 31 Salaries Expense 600 Salaries Payable 600 Adjusting entry

Learning Unit 12-3 (Reversing Entries Example) January 1 Salaries Payable 600 Salaries Expense 600 Reversing entry

Learning Unit 12-3 (Reversing Entries Example) January 1 Salaries Expense 2,000 Cash 2,000 Paid salaries

End of Chapter 12