1. Completion of the Accounting Cycle for a Merchandise Company
Chapter 12
Completion of the Accounting Cycle for a Merchandise Company
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

2. Learning Objective 1
Preparing financial statements for a merchandise company
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

3. The Income Statement
Companies want to know how well they did during the year
Net sales
Returns
Cost of goods sold (C.O.G.S.)
Returned goods
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

4. Operating Expenses Includes both Selling and Administrative Expenses
SELLING EXPENSES
Sales Salaries Expense
Delivery Expense
Advertising Expense
Depreciation Expense, Store Equipment
Insurance Expense
ADMINISTRATIVE EXPENSES
Rent
Office Salaries Expense
Utilities Expense
Supplies Expense
Depreciation Expense, Office Equipment
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

5. The Income Statement Shows: Net Sales - Cost of Goods Sold
= Gross Profit
- Operating Expenses
= Net Income from Operations
+ Other Income
- Other Expenses
Net Income
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

6. We will start with Problem 12B-1
We will break down the various sections of the income statement by completing problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

7. Problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

8. Problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

9. Problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

10. Problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

11. Problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

12. Problem 12B-1
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

13. Statement of Owner’s Equity
Financial statement that reveals changes in capital
Information to prepare comes from Balance sheet section of worksheet
Ending capital figure is transferred to the balance sheet
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

14. Statement of Owner’s Equity
We will use 12B-2 to illustrate the preparation of the Statement of Owner’s Equity and a Classified Balance Sheet.
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

15. Statement of Owner’s Equity
Beginning
Capital
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

16. Statement of Owner’s Equity
-Withdrawals
+Net Income
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

17. Statement of Owner’s Equity
-Withdrawals
-Net Loss
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

18. Statement of Owner’s Equity
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

19. Classified Balance Sheet
Current Assets
Will be converted into cash or used up during normal operating cycle or one year, whichever is longer
Listed in order of liquidity
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

20. Classified Balance Sheet
Plant and Equipment
Long-lived assets
Used in production or sale of goods or services
Usually listed in order according to how long they will last
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

21. Classified Balance Sheet
Current liabilities
Debts or obligations that must be paid within one year or one operating cycle
Includes currently maturing portions of long- term liabilities
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

22. Classified Balance Sheet
Long-term Liabilities
Debts or obligations that are not due and payable for a comparatively long period (at least one year)
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

23. Classified Balance Sheet
Current Assets
Plant &
Equipment
Current Liabilities
Long-term
Liabilities
LO-1
Note: $3,000 of Mortgage is due within one year
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

24. Classified Balance Sheet
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

25. Classified Balance Sheet
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

26. Learning Objective 2 Recording adjusting and closing entries LO-2
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27. Recording Adjusting Entries
Refer to Problem 11A-2 again
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

28. Recording Adjusting Entries
LO-2
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29. Recording Adjusting Entries
Dec 31
Insurance Expense
150
Prepaid Insurance
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

30. Recording Adjusting Entries
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

31. Recording Adjusting Entries
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

32. Recording Closing Entries
Step 1: Close all balances on income statement credit column except Income Summary
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

33. Recording Closing Entries
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

34. Recording Closing Entries
Step 2: Close all balances on the income statement debit column except Income Summary
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

35. Recording Closing Entries
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

36. Recording Closing Entries
Income Summary
Adjusting Entries
600
310
Closing Entries
9,036
11,310
Bal 1,984
Step 3: Transfer the balance of the Income Summary account to the Capital account
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

37. Recording Closing Entries
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

38. Recording Closing Entries
There were no withdrawals by Jim Spool, however had he made withdrawals the journal entry would be as presented above.
Step 4: Transfer the balance of the Owner’s Withdrawal account to the Capital account.
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

39. Learning Objective 3 Preparing post-closing trial balance LO-3
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40. Post-Closing Trial Balance
Prepared from the general ledger
Trial balance prepared after all temporary accounts have been closed
Only permanent accounts have non-zero balances
LO-3
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

41. Learning Objective 4 Completing reversing entries LO-4
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

42. Reversing Entries Optional bookkeeping technique
Certain adjusting entries are reversed (switched) on the first day of the new accounting period
Transactions in the new period can be recorded without referring back to prior adjusting entries
LO-4
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

43. Reversing Entries
When there is an increase in an asset account (no previous balance)
Example: Debit interest receivable, credit interest income
When there is an increase in a liability account (no previous balance)
Example: Debit wages expense, credit wages payable
LO-4
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

44. End of Chapter 12
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater