1. Accounting for Merchandising Businesses6
Accounting for Merchandising Businesses

2. After studying this chapter, you should be able to:
Distinguish between the activities and financial statements of service and merchandising businesses.
Describe and illustrate the financial statements of a merchandising business.

3. After studying this chapter, you should be able to:
After studying this chapter, you should be able to:
Describe and illustrate the accounting for merchandise transactions including:
sale of merchandise
purchase of merchandise
transportation costs, sales taxes, trade discounts
dual nature of merchandising transactions.
Describe the adjusting and closing process for a merchandising business.

4. 6-1
Objective 1
Distinguish between the activities and financial statements of service and merchandising businesses.

5. Operating expenses –XXX Net income $XXX
6-1
Service Business
Fees earned $XXX
Operating expenses –XXX
Net income $XXX

6. Merchandising Business
6-1
Merchandising Business
Sales $XXX
Cost of Merchandise Sold –XXX
Gross Profit $XXX
Operating Expenses –XXX
Net Income $XXX

7. 6-1
When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold.

8. 6-1
The cost of merchandise sold is subtracted from sales to arrive at gross profit. This amount is called gross profit because it is the profit before deducting the operating expenses.

9. 6-1
Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory.

10. For Practice: PE 6-1A, PE 6-1B
6-1
1-2
Example Exercise 6-1
On August 25, Gallatin Repair Service extended an offer of $125,000 for land that had been priced for sale at $150,000. On September 3, Gallatin Repair Service accepted the seller’s counteroffer of $137,000. On October 20, the land was assessed at a value of $98,000 for property tax purposes. On December 4, Gallatin Repair Service was offered $160,000 for the land by a national retail chain. At what value should the land be recorded in Gallatin Repair Service’s records?
During the current year, merchandise is sold for Rp250,000,000 cash and for Rp975,000,000 on account. The cost of the merchandise sold is Rp735,000,000. What is the amount of the gross profit?
Follow My Example 6-1
The gross profit is Rp490,000,000 (Rp250,000,000 + Rp975,000,000 –Rp735,000,000).
Follow My Example 1-1
$137,000. Under the cost concept, the land should be recorded at the cost to Gallatin Repair Service. 31 10
For Practice: PE 6-1A, PE 6-1B

11. 6-1 11

12. 6-2
Objective 2
Describe and illustrate the financial statements of a merchandising business.

13. Multiple-Step Income Statement
6-2
The multiple-step income statement contains several sections, subsections, and subtotals.

14. 6-2
The Sales account provides the total amount charged to customers for merchandise sold, including cash sales and sales on account.

15. 6-2
Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise.

16. 6-2
Sales discounts are granted by the seller to customers for early payment of amounts owed.

17. 6-2
Net sales is determined by subtracting sales returns and allowances and sales discounts from sales.

18. Income Statement For the Year Ended December 31, 2009 (in Rp000)
Multiple-Step Income Statement
6-2
SolusiNet
Income Statement For the Year Ended December 31, 2009 (in Rp000)
Revenue from sales:
Sales Rp720,185
Less: Sales returns and allowances Rp 6, Sales discounts , ,930
Net sales Rp708,255
Cost of merchandise sold 525,305
Gross profit Rp182,950
(Continued) 18

19. (In Rp000) (Continued) 19 Operating expenses: Selling expenses:
Operating expenses:
Selling expenses:
Sales salaries expense Rp53,430
Advertising expense 10,860
Depr. Expense–store equipment 3,100
Delivery Expense 2,800
Miscellaneous selling expense
Total selling expenses Rp 70,820
Administrative expenses:
Office salaries expense Rp21,020
Rent expense 8,100
Depr. expense–office equipment 2,490
Insurance expense 1,910
Office supplies expense 610
Misc. administrative expense
Total admin. expenses ,890
Total operating expenses ,710
Income from operations Rp 77,240
(Continued) 19

20. 6-2 (In Rp000) (Concluded) 20 Other income and expenses:
6-2
(In Rp000)
Other income and expenses:
Rent revenue Rp 600
Interest expense (2,440) (1,840)
Net income Rp75,400 20
(Concluded)

21. 6-2
Cost of merchandise sold was discussed earlier. It is the cost of the merchandise sold to customers.

22. 6-2
As we discussed in Slide 16, sellers may offer customers sales discounts for early payment of their bills. From the buyer’s perspective, such discounts are referred to as purchase discounts.

23. 6-2
The buyer may return merchandise to the seller (a purchase return), or the buyer may receive a reduction in the initial price at which the merchandise was purchased (a purchase allowance).

24. Cost of Merchandise Sold
6-2

25. Single-Step Income Statement
Single-Step Income Statement
6-2
An alternative form of income statement is the single-step income statement. As shown in the next slide, the income statement for SolusiNet deducts the total of all expenses in one step from the total of all revenues.

26. 6-2 Exhibit 3: Single-Step Income Statement 26
Exhibit 3: Single-Step Income Statement
6-2
SolusiNet Income Statement For the Year Ended December 31, 2009 (in Rp000)
Revenues:
Net sales Rp708,255
Rent revenue
Total revenues Rp708,855
Expenses:
Cost of merchandise sold Rp525,305
Selling expenses 70,820
Administrative expenses 34,890
Interest expense ,440
Total expenses ,455
Net income Rp 75,400 26

27. 6-2 Exhibit 4: Statement of Owner’s Equity 27
Exhibit 4: Statement of Owner’s Equity
6-2
SolusiNet Statement of Owner’s Equity For the Year Ended December 31, 2009 (in Rp000)
Chris Clark, capital, 1/1/09 Rp153,800
Net income for year Rp75,400
Less withdrawals 18,000
Increase in owner’s equity ,400
Chris Clark, capital, 12/31/09 Rp211,200 27

28. SolusiNet Balance Sheet December 31, 2009 (in Rp000)
Exhibit 5: Report Form of Balance Sheet
6-2
SolusiNet Balance Sheet December 31, 2009 (in Rp000)
Assets
Current assets:
Cash Rp52,950
Accounts receivable 91,080
Merchandise inventory 62,150
Office supplies 480
Prepaid insurance 2, Total current assets Rp209,310 28
(Continued)

29. 6-2 (In Rp000) Exhibit 5: Report Form of Balance Sheet
Exhibit 5: Report Form of Balance Sheet
6-2
Property, plant, and equip.:
Land Rp20,000
Store equipment Rp27,100
Less accumulated
depreciation 5,700 21,400
Office equipment Rp15,570
depreciation ,720 10,850 Total property, plant,
and equipment ,250
Total assets Rp261,560 29
(In Rp000)
(Continued)

30. 6-2 Exhibit 5: Report Form of Balance Sheet Liabilities
6-2
Exhibit 5: Report Form of Balance Sheet
Liabilities
Current liabilities:
Accounts payable Rp22,420
Note payable (current portion) 5,000
Salaries payable 1,140
Unearned rent 1,800
Total current liabilities Rp 30,360
Long-term liabilities:
Note payable (final pmt. due 2017) ,000
Total liabilities Rp 50,360
Owner’s Equity
Cinta Cita, capital ,200
Total liabilities and owner’s equity Rp261,560 30
(Concluded)

31. Merchandise Inventory, May 1 Rp121,200,000
6-2
Example Exercise 6-2
Based upon the following data, determine the cost of merchandise sold for May. Use the format seen in Exhibit 2.
Merchandise Inventory, May Rp121,200,000
Merchandise Inventory, May ,000,000
Purchases ,000,000
Purchases Returns and Allowances ,500,000
Purchases Discounts ,000,000
Transportation In ,300,000 31

32. For Practice: PE 6-2A, PE 6-2B
6-2
Follow My Example 6-2
Merchandise Inventory, May 1 Rp 121,200
Purchases Rp985,000
Less: Purchases returns and allowances Rp23,500
Purchases discounts 21, ,500
Net purchases Rp940,500
Add transportation in ,300
Cost of merchandise purchased ,800
Merchandise available for sale Rp1,073,000
Less merchandise inventory, May ,000
Cost of merchandise sold Rp 931,000 32
For Practice: PE 6-2A, PE 6-2B

33. 6-3
Objective 3
Describe and illustrate the accounting for merchandise transactions including: sale of merchandise; purchase of merchandise; transportation costs, sales taxes, trade discounts; dual nature of merchandise transactions.

34. On January 3, SolusiNet sold Rp1,800,000 of merchandise for cash.
Cash Sales
6-3
On January 3, SolusiNet sold Rp1,800,000 of merchandise for cash.
@solusinet

35. Cash Sales (continued)
6-3
Using a perpetual inventory, the Rp1,200,000 cost of the inventory must be recorded.

36. Credit Card Sales
6-3
At the end of the month, Rp48,000 was sent to pay the service charge on credit card sales. 36

37. Sales on Account Using a Perpetual Inventory
6-3
Jan. 12 Accounts Receivable—CV Agung Surya
Sales
Invoice No. 7172
12 Cost of Merchandise Sold
Merchandise Inventory
Cost of merchandise sold on Invoice No
On January 12, SolusiNet sold CV Agung Surya merchandise on account, Rp510,000. The cost of the merchandise to the seller was Rp280,000. 37

38. Sales Discounts
6-3
The terms for when payments for merchandise are to be made, agreed on by the buyer and the seller, are called credit terms. If buyer is allowed an amount of time to pay, it is known as the credit period.

39. If invoice is paid within 10 days of invoice date
Credit Terms
6-3
Invoice for Rp1,500,000
Terms:
2/10, n/30
If invoice is paid within 10 days of invoice date
Rp1,470,000 paid (Rp1,500,000 less a 2% discount) 39

40. If invoice is NOT paid within 10 days of invoice date
6-3
If invoice is NOT paid within 10 days of invoice date
Invoice for Rp1,500,000
Terms:
2/10, n/30
Full amount (Rp1,500,000) is due within 30 days of invoice date 40

41. Sales Discounts
6-3
Jan. 22 Cash
Sales Discounts
Accounts Receivable–Omega Tech
Collection of Invoice No , less 2% discount.
On January 22, SolusiNet receives the amount due, less the 2 percent discount. 41

42. 6-3
Jan. 13 Sales Returns and Allowances
Accounts Receivable-PT Krisna
Credit Memo No. 32
13 Merchandise Inventory
Cost of Goods Sold
Cost of merchandise returned. Credit Memo No. 32.
On January 13, issued Credit Memo 32 to PT Krisna for merchandise returned to SolusiNet. Selling price, Rp225,000; cost to SolusiNet, Rp140,000. 42

43. Journalize the following merchandise transactions:
1-2
6-3
Example Exercise 6-3
Journalize the following merchandise transactions:
Sold merchandise on account, Rp7,500,000 with terms of 2/10, n/30. The cost of the merchandise sold was Rp5,625,000.
Received payment less the discount. 43

44. Cost of Merchandise Sold 5,625,000 Merchandise Inventory 5,625,000
6-3
Follow My Example 6-3
Accounts Receivable 7,500,000
Sales 7,500,000
Cost of Merchandise Sold 5,625,000
Merchandise Inventory 5,625,000
Cash 7,350,000
Sales Discounts 150,000
Accounts Receivable 7,500,000 44
For Practice: PE 6-3A, PE 6-3B

45. Purchase Transactions (Perpetual Inventory)
6-3
JOURNAL
PAGE 24
Post. Ref.
Date
Description
Dr Cr.
2009
Jan. 3 Merchandise Inventory
Cash
Purchased inventory from CV Budi.
On January 3, SolusiNet purchased merchandise for cash from Alden Company, Rp2,510,000. 45

46. 6-3
Jan. 4 Merchandise Inventory
Accounts Payable—CV Thomas
Purchased inventory on account.
On January 4, SolusiNet purchased merchandise on account from CV Thomas, Rp9,250,000. 46

47. Purchases Discounts
6-3
PT Alpha Technologies issues an invoice for Rp3,000,000 to SolusiNet dated March 12, with terms 2/10, n/30.

48. Interest for 20 days at the rate of 6% on Rp2,940,000 – 9,800
6-3
SolusiNet borrows cash at an annual interest rate of 6%. Should the firm borrow cash to pay the invoice within the discount period?
YES
Discount of 2% on Rp3,000, Rp60,000
Interest for 20 days at the rate
of 6% on Rp2,940, – 9,800
Savings from borrowing Rp50,200

49. Purchase Transactions (Perpetual Inventory)
6-3
Mar. 12 Merchandise Inventory
Accounts Payable— PT Alpha Tech
Purchased inventory on account.
On March 12, SolusiNet purchased merchandise on account from PT Alpha Technologies, Rp3,000,000. 49

50. 6-3
Mar Accounts Payable— PT Alpha Technol
Cash
Merchandise Inventory
Paid PT Alpha Technologies for March 12 purchase.
If payment is made by March 22, SolusiNet records the discount as a reduction in cost. Notice that Merchandise Inventory is credited because NetSolutions maintains a perpetual inventory. 50

51. 6-3
Apr Accounts Payable— PT Alpha Technol
Cash
Paid PT Alpha Technologies for March 12 purchase.
If SolusiNet does not pay the invoice until April 11, it would pay the full amount. 51

52. Purchases Return
6-3
A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order.

53. Purchases Allowance
6-3
When the defective or incorrect merchandise is kept by the buyer and the vendor makes a price adjustment, this is a purchases allowance.

54. 6-3
@solusinet
SolusiNet receives the delivery from PT Malang Komputer and determines that Rp900,000 of the items are not the merchandise ordered. Debit memorandum #18 (also called a debit memo) is issued to Maxim Systems.

55. 6-3
Mar. 7 Accounts Payable—PT Malang Komp
Merchandise Inventory
Debit Memo No. 18
On March 7, SolusiNet records the return of the merchandise indicated in Debit Memorandum No. 18. 55

56. 6-3
On May 2, SolusiNet purchased Rp5,000,000 of merchandise from Delta Data Link, subject to terms 2/10, n/30.
May 2 Merchandise Inventory
Accounts Payable—Delta Data
Purchased merchandise. 56

57. On May 4, SolusiNet returns Rp3,000,000 of the merchandise.
6-3
On May 4, SolusiNet returns Rp3,000,000 of the merchandise.
4 Accounts Payable—Delta Data Link
Merchandise Inventory
Returned portion of the merchandise purchased. 57

58. 6-3
On May 12, SolusiNet pays the amount due, Rp1,960,000 [Rp2,000,000 – (Rp5,000,000 –Rp3,000,000) x 2%)].
12 Accounts Payable—Delta Data Links
Cash
Merchandise Inventory
Paid invoice [(Rp5,000,000 – Rp3,000,000) x 2% = Rp40,000; Rp2,000,000 – Rp40,000 =Rp1,960,000] 58

59. 6-3
Example Exercise 6-4
Ramli Company purchased merchandise on account from a supplier for Rp11,500,000, terms 2/10, n/30. Rofles Company returned Rp3,000,000 of the merchandise and received full credit.
If Rofles Company pays the invoice within the discount period, what is the amount of cash required for the payment?
Under a perpetual inventory system, what account is credited by Rofles Company to record the return? 59

60. Merchandise Inventory.
6-3
Follow My Example 6-4
Rp8,330,000. Purchase of Rp11,500,000 less the return of Rp3,000,000 less the discount of Rp170,000 [(Rp11,500,000 – Rp3,000,000) x 2%].
Merchandise Inventory. 60
For Practice: PE 6-4A, PE 6-4B

61. Transportation Costs
6-3
If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier, it is said to be FOB (free on board) shipping point.

62. 6-3
June Merchandise Inventory
Accounts Payable—Magna Data
Purchased merchandise, terms FOB shipping point.
10 Merchandise Inventory
Cash
Paid shipping cost .
On June 10, SolusiNet buys merchandise from Magna Data on account, Rp900,000, terms FOB shipping point and pays the transportation cost of Rp50,000. 62

63. Transportation Costs
6-3
If ownership of the merchandise passes to the buyer when the buyer receives the merchandise, the terms are said to be FOB (free on board) destination.

64. FOB Destination
6-3
@solusinet
On June 15, SolusiNet sells merchandise to PT Kiki on account, Rp700,000, terms FOB destination. The cost of the merchandise sold is Rp480,000.

65. 6-3 June 15 Accounts Receivable—PT Kiki 700 000 Sales 700 000
6-3
June 15 Accounts Receivable—PT Kiki
Sales
Sold merchandise, terms FOB destination.
15 Cost of Merchandise Sold
Merchandise Inventory
Record cost of merchandise sold to PT Kiki 65

66. On June 15, SolusiNet pays the transportation cost of Rp40,000.
6-3
June 15 Delivery Expense
Cash
Paid shipping cost on merchandise sold.
On June 15, SolusiNet pays the transportation cost of Rp40,000. 66

67. FOB Shipping Point
6-3
On June 20, SolusiNet sells merchandise to CV Permadi on account, Rp800,000, terms FOB shipping point. The cost of the merchandise sold is Rp360,000.

68. 6-3 June 20 Accounts Receivable—CV Permadi 800 000 Sales 800 000
6-3
June 20 Accounts Receivable—CV Permadi
Sales
Sold merchandise, terms FOB shipping point.
20 Cost of Merchandise Sold
Merchandise Inventory
Record cost of merchandise sold to CV Permadi 68

69. 6-3
June 20 Accounts Receivable—CV Permadi
Cash
Prepaid shipping cost on merchandise sold.
SolusiNet pays the transportation cost of Rp45,000 and adds it to the invoice. 69

70. 6-3
Example Exercise 6-5
Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.
Transportation Returns and
Merchandise Paid by Seller Transportation Terms Allowances
Rp4,500, Rp200, FOB shipping point, Rp800, /10, n/30
Rp5,000, , FOB destination, Rp2,500, /10, n/30 70

71. For Practice: PE 6-5A, PE 6-5B
6-3
Follow My Example 6-5
Rp3,863,000. Purchase of Rp4,500,000 less return of Rp800,000 less the discount of Rp37,000 [(Rp4,500,000 – Rp800,000) x 1%] plus Rp200,000 of shipping.
Rp2,450,000. Purchase of Rp5,000,000 less return of Rp2,500,000 less the discount of Rp50,000 [(Rp5,000,000 – Rp2,500,000) x 2%]. 71
For Practice: PE 6-5A, PE 6-5B

72. 6-3 72 18

73. Sales Taxes
6-3
Aug. 12 Accounts Receivable—CV Lemon
Sales
Sales Taxes Payable 6 000
Invoice No. 339
On August 12, merchandise is sold on account to Lemon Company, Rp100,000. The state has a 6% sales tax. 73 18

74. 6-3
Sept. 15 Sales Tax Payable
Cash
Payment for sales taxes collected during August.
On September 15, the seller sends in a payment of Rp2,900,000 to the taxing unit for the August taxes collected. 74 18

75. Trade Discounts
6-3
When wholesalers offer special discounts to certain classes of buyers that order large quantities, these discounts are called trade discounts.

76. Dual Nature of Merchandise Transactions
6-3
Each merchandising transaction affects a buyer and a seller. In the following illustrations, we show how the same transactions would be recorded by both the seller and the buyer.
July 1. CV Santi sold merchandise on account to CV Budiman, Rp7,500,000, terms FOB shipping point, n/45. The cost of the merchandise sold was Rp4,500,000.

77. Accounts Receivable—CV Budiman 7,500,000 Sales 7,500,000
6-3
CV Santi (Seller)
Accounts Receivable—CV Budiman ,500,000
Sales ,500,000
Cost of Merchandise Sold ,500,000
Merchandise Inventory ,500,000
CV Budiman (Buyer)
Merchandise Inventory ,500,000
Accounts Payable—CV Santi ,500,000 77 18

78. 6-3
July 2 CV Budiman paid transportation charges of Rp150,000 on July 1 purchase from CV Santi.

79. Merchandise Inventory 150,000 Cash 150,000
6-3
CV Santi (Seller)
No entry.
CV Budiman (Buyer)
Merchandise Inventory 150,000
Cash 150,000 79 18

80. 6-3
July 5 CV Santi sold merchandise on account to CV Budiman, Rp5,000,000, terms FOB destination, n/30. The cost of the merchandise sold was Rp3,500,000.

81. Accounts Receivable—CV Budiman 5,000,000 Sales 5,000,000
6-3
CV Santi (Seller)
Accounts Receivable—CV Budiman ,000,000
Sales ,000,000
Cost of Merchandise Sold ,500,000
Merchandise Inventory ,500,000
CV Budiman (Buyer)
Merchandise Inventory ,000,000
Accounts Payable—CV Santi ,000,000 81 18

82. 6-3
July 7. CV Santi paid transportation costs of Rp250,000 for delivery of merchandise sold to CV Budiman on July 5.

83. Delivery Expense 250,000 Cash 250,000 No entry. 6-3 CV Santi (Seller)
6-3
CV Santi (Seller)
Delivery Expense 250,000
Cash 250,000
CV Budiman(Buyer)
No entry. 83 18

84. 6-3
July 13. CV Santi issued CV Budiman a credit memorandum for Rp1,000,000 of merchandise returned from a July 5 purchase on account. The cost of the merchandise was Rp700,000.

85. Sales Returns and Allowances 1,000,000
6-3
CV Santi (Seller)
Sales Returns and Allowances ,000,000
Accounts Receivable—CV Budiman ,000,000
Merchandise Inventory ,000
Cost of Merchandise Sold ,000
CV Budiman (Buyer)
Accounts Payable—CV Santi ,000,000
Merchandise Inventory ,000,000 85 18

86. 6-3
July 15. CV Santi received payment from CV Budiman for purchase of July 5.

87. Accounts Receivable—CV Budiman 4,000,000
6-3
CV Santi (Seller)
Cash ,000,000
Accounts Receivable—CV Budiman ,000,000
CV Budiman (Buyer)
Accounts Payable—CV Santi ,000,000
Cash ,000,000 87 18

88. 6-3
July 18. CV Santi sold merchandise on account to CV Budiman, Rp12,000,000, terms FOB shipping point, 2/10, n/eom. Santi prepaid transportation costs of Rp500,000, which were added to the invoice. The cost of the merchandise sold was Rp7,200,000.

89. Accounts Receivable—CV Budiman 12,000,000 Sales 12,000,000
6-3
CV Santi (Seller)
Accounts Receivable—CV Budiman 12,000,000
Sales 12,000,000
Accounts Receivable—CV Budiman ,000
Cash ,000
Cost of Merchandise Sold 7,200,000
Merchandise Inventory ,200,000
CV Budiman (Buyer)
Merchandise Inventory 12,500,000
Accounts Payable—CV Santi 12,500,000 89 18

90. 6-3
July 28. CV Santi received payment from CV Budiman for purchase of July 18, less discount (2% x Rp12,000,000).

91. Accounts Receivable—CV Budiman 12,500,000
6-3
CV Santi (Seller)
Cash 12,260,000
Sales Discounts ,000
Accounts Receivable—CV Budiman ,500,000
CV Budiman (Buyer)
Accounts Payable—CV Santi 12,500,000
Merchandise Inventory ,000
Cash ,260,000 91 18

92. 1-2
6-3
Example Exercise 6-6
Santi Co. sold merchandise to Butet Co. on account, Rp11,500,000, terms 2/15, n/30. The cost of the merchandise sold is Rp6,900,000. Santi Co. issued a credit memorandum for Rp900,000 for merchandise returned and later received the amount due within the discount period. The cost of the merchandise returned was Rp540,000. Journalize Santi Co.’s and Butet Co.’s entries for the receipt of the check for the amount due from Butet Co. 92

93. 6-3 Follow My Example 6-6 Santi Company Journal Entries:
6-3
Follow My Example 6-6
Santi Company Journal Entries:
Cash (Rp11,500,000 – Rp900,000 – Rp212,000) 10,388,000
Sales Discounts [(Rp11,500,000 – Rp900,000) x 2%] ,000
Accounts Receivable—Butet Co.
(Rp11,500,000 – Rp900,000) 10,600,000
Butet Company Journal Entries:
Accounts Payable—Santi Co.
(Rp11,500,000 –Rp900,000) 10,600,000
Merchandise Inventory [(Rp11,500,000 –
Rp900,000)x 2%] ,000
Cash (Rp11,500,000 – Rp900,000
– Rp212,000) 10,388,000 93
For Practice: PE 6-6A, PE 6-6B

94. 6-4
Objective 4
Describe the adjusting and closing process for a merchandising business.

95. Inventory Shrinkage
6-4
Merchandising businesses may experience some loss of inventory due to shoplifting, employee theft, or errors in recording or counting inventory. If the balance of the Merchandise Inventory account is larger than the total amount of merchandise count, the difference is often called inventory shrinkage or inventory shortage.

96. 6-4
@solusinet
SolusiNet inventory records indicate that Rp63,950,000 of merchandise should be available for sale on December 31, The physical count reveals that only Rp62,150,000 is actually available.

97. Inventory records Rp63,950,000 Inventory count 62,150,000
6-4
Adjusting Entry
Dec. 31 Cost of Merchandise Sold
Merchandise Inventory
Inventory shrinkage (Rp63,950,000 – Rp62,150,000).
Inventory records Rp63,950,000
Inventory count ,150,000
Inventory shortage Rp 1,800,000 97 18

98. Close the temporary accounts with credit balances to Income Summary.
Step 1: Closing Entries
6-4
Close the temporary accounts with credit balances to Income Summary.
Date Item PR Debit Credit
Closing Entries
2009
Dec. 31 Sales
Rent Revenue
Income Summary 98

99. Close the temporary accounts with debit balances to Income Summary.
Step 2: Closing Entries
6-4
6-4
Close the temporary accounts with debit balances to Income Summary. 99

100. 6-4 6-4 Step 2: Closing Entries 31 Income Summary 312 645 385 000
Step 2: Closing Entries
6-4
6-4
100
31 Income Summary
Sales Returns and Allow
Sales Discounts
Cost of Merchandise Sold
Sales Salaries Expense
Advertising Expense
Depr. Exp.—Store Equip
Delivery Expense
Misc. Selling Expense
Office Salaries Expense
Rent Expense
Depr. Exp.—Office Equip
Insurance Expense
Office Supplies Expense
Misc. Administrative Exp
Interest Expense

101. Step 3: Closing Entries
6-4
Close Income Summary (the balance represents a Rp75,400,000 profit for SolusiNet in 2009) to Cinta Cita, Capital.
31 Income Summary
Cinta Cita, Capital
101

102. Close Cinta Cita, Drawing to Cinta Cita, Capital.
Step 4: Closing Entries
6-4
Close Cinta Cita, Drawing to Cinta Cita, Capital.
31 Cinta Cita, Capital
Cinta Cita, Drawing
102

103. 6-4
1-2
Example Exercise 6-7
Parulian Company’s perpetual inventory records indicate that Rp382,800,000 of merchandise should be on hand on March 31, The physical inventory indicates that Rp371,250,000 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Parulian Company for the year ended March 31, 2008.
Follow My Example 6-7
Mar Cost of Merchandise Sold
(Rp382,800,000 –(Rp371,250,000) 11,550,000
Merchandise Inventory 11,550,000
103
For Practice: PE 6-7A, PE 6-7B

104. Ratio of Net Sales to Assets
6-4
Financial Analysis
The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.
Net sales
Average total assets
Ratio of Net Sales to Assets =

105. PT Matahari Prima Putra
Ratio of Net Sales to Assets
6-4
PT Hero Supermarket
PT Matahari Prima Putra
Total revenues (net sales)
Rp5,147,229
Rp9,768,075
Total assets:
Beginning of year
1,615,240
6,048,441
End of year
1,753,298
8,403,470
Average Total asset
1,684,269
7,225,956
Ratio of net sales to assets
3.06
1.35

106. 6-4
Interpretation
Based on these ratios, PT Hero Supermarket appears better than PT Matahari Putra Prima in utilizing its assets to generate sales.