1. First Canadian Edition Price • Haddock • Brock • Hahn • Reed
College
Accounting
First Canadian Edition
Price • Haddock • Brock • Hahn • Reed
Throughout this presentation I will be referring to the Price text entitled College Accounting, First Canadian edition
McGraw-Hill Ryerson 1

2. MERCHANDISING BUSINESS
CHAPTER 9
COMPLETING THE
WORKSHEET FOR A
MERCHANDISING BUSINESS 2

3. Determine the adjustments for merchandise inventory.
OBJECTIVE 1
Determine the adjustments
for merchandise inventory. 3

4. An End-of-Period Worksheet 4 FASHION WORLD TRIAL BALANCE ADJUSTMENTS
Worksheet (Partial)
For the Year Ended December 31, 20X4
TRIAL BALANCE ADJUSTMENTS
ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT
Cash ,200.00
Petty Cash
Accounts Receivable , (i)
Allowance for Doubtful Accounts (b)
Merchandise Inventory , (a)
Prepaid Insurance , (h) 1,800.00
Supplies , (g) 4,240.00
Store Equipment ,000.00
Accumulated Amortization: Store Equipment (c) 2,100.00
Office Equipment ,500.00
Accumulated Amortization: Office Equipment (d)
Notes Payable: Trade ,000.00
Notes Payable: Bank ,000.00
Accounts Payable ,138.00
Interest Payable (f)
CPP Contributions Payable
EI Premiums Payable
Wages Payable (e) 2,700.00
Prepaid GST ,460.00
GST Payable ,390.00
Provincial Sales Tax Payable ,731.00
Carolyn Wells, Capital ,632.76
Carolyn Wells, Drawing ,000.00
Sales ,650.00
Sales Returns and Allowances ,000.00
Miscellaneous Income (i)
Cost of Goods Sold ,000.00
Merchandise Inventory Loss (a)
Sales Salaries Expense ,490.00
Wages Expense , (e) 2,700.00
Advertising Expense ,425.00
Supplies Expense (g) 4,240.00
Cash Short or Over
An End-of-Period
Worksheet 4

5. An End-of-Period Worksheet (Cont’d.)
FASHION WORLD
Worksheet (Partial)
For the Year Ended December 31, 20X4
TRIAL BALANCE ADJUSTMENTS
ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT
Amortization Expense: Store Equipment (c) 2,100.00
Amortization Expense: Office Equipment (d)
Rent Expense ,500.00
Insurance Expense (h) 1,800.00
Utilities Expense ,915.00
Payroll Taxes Expense , (f)
Telephone Expense ,720.99
Uncollectible Accounts Expense (b)
Interest Expense (f)
Totals , , , ,713.94
An End-of-Period Worksheet (Cont’d.) 5

6. Determine the adjustment for loss from uncollectible
OBJECTIVE 2
Determine the adjustment
for loss from uncollectible
accounts. 6

7. UNCOLLECTIBLE ACCOUNTS EXPENSE
Has a debit balance.
Appears in the operating expenses section of the income statement.
It is an expense for anticipated uncollectible accounts.
There are many methods for determining the amounts to be used for this adjusting entry, including the percentage of net sales on account. 7

8. Uncollectible Accounts Expense
Determine
Uncollectible Accounts Expense
using a percentage of net sales on account
Fashion World estimates 0.3% of their net credit sales of $210,000 will be uncollectible.
Revenue x 0.3% = Uncollectible Expense
$210,000 x 0.3% = $630 8

9. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Contra-Asset Account
Directly reduces the Accounts Receivable Account
Has a credit balance
Appears on the balance sheet 9

10. Determine the adjustment
OBJECTIVE 3
Determine the adjustment
for amortization. 10

11. ADJUSTMENT FOR AMORTIZATION
Amortization is recorded for long-term assets.
A long-term asset is defined as having a useful life of more than one year.
Amortization allocates the value of long-term assets over their useful life. For example, if an asset has a useful life of five years, we would calculate the total amortization over a five year period. 11

12. AMORTIZATION OF STORE EQUIPMENT
$12,000
(COST)
$1,500
(SALVAGE VALUE)
$2,100
(YEARLY
AMORTIZATION)
5 YEARS (USEFUL LIFE) 12

13. AMORTIZATION OF OFFICE EQUIPMENT
$3,000
(COST)
$500
(SALVAGE VALUE)
$600
(YEARLY
AMORTIZATION)
5 YEARS (USEFUL LIFE) 13

14. Determine the adjustment for accrued and prepaid
OBJECTIVE 4
Determine the adjustment
for accrued and prepaid
expenses. 14

15. ADJUSTMENT FOR ACCRUED EXPENSE
Accrued expenses are expenses for the current period that have not been paid. An adjustment will be made in order to record the expenses in the proper fiscal period. 15

16. ACCRUED EXPENSES
Fashion World has three accrued expenses that require adjustments:
Accrued Salaries
Accrued Payroll Taxes
Accrued Interest on Notes Payable
These items are expenses that will be paid in a later period.
To record these items, the expense account is debited and the liability account is credited. 16

17. ACCRUED WAGES
Fashion World has part-time sales employees who are paid every Friday.
December 31, 20X4 falls on Wednesday. Payday is not until Friday. We have three days worth of expenses for 20X4 that will not be paid until January 20X5.
The Sales Salaries Expense for these three days needs to be recorded in 20X4. 17

18. ACCRUED INTEREST ON NOTES PAYABLE
On December 1, 20X4 Fashion World borrowed $3, from the bank and promised to repay this amount in two months plus an additional 6% in interest charges.
The interest expense accumulates daily but in this case is not to be paid until the $3, is repaid at the end of the two months.
On December 31, one month’s worth of interest has accumulated. 18

19. Principle X Rate X Time = Interest
FORMULA FOR CALCULATING INTEREST
Principle X Rate X Time = Interest
$3, X 6/100 X 30/365 = $14.79 19

20. Determine the adjustment
OBJECTIVE 5
Determine the adjustment
for accrued income and
unearned income. 20

21. ACCRUED INCOME
Accrued income is income that has been earned but not yet received or recorded.
The appropriate revenue account must be credited to increase its balance even though the amount will not be collected until a later period. 21

22. UNEARNED OR DEFERRED INCOME
Any portion of a firm’s income that has been received but not earned during a fiscal period should not be reported on the income statement prepared for the period.
The amount should be reported as income in the period when it is earned. 22

23. UNEARNED OR DEFERRED INCOME
The following is an example of a magazine publisher:
When the publisher first receives income from subscriptions, it is unearned.
The subscriptions represent a liability because the publisher has an obligation to provide the magazines during the specified period of time.
As the magazines are sent to the subscribers, the income is gradually earned and the liability decreases. 23

24. OBJECTIVE 6 Complete a 10-column worksheet.24

25. BE SURE COLUMN TOTALS EQUAL
FASHION WORLD
Worksheet (Partial)
Year Ended December 31, 20X4
ACCOUNT NAME TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Telephone Expense ,720.99
Uncollectible Accounts Expense (b)
Interest Expense (g)
Totals , , , ,713.94
Net Income
BE SURE COLUMN TOTALS EQUAL 25