1. CHAPTER 16 Worksheet for a Merchandising Business

2. Worksheet Reasons Prove equality of debits & credits. Summarizes financial information needed to prepare financial statements. Plan adjustments Calculate net income/loss.

3. Prepare a Worksheet 1. Prepare the Heading  Name of the business, Name of the report, Date of the report 2. Prepare the Trial Balance Trial Balance: a proof of the equality of debits and credits in the general ledger. 3. Prepare the Adjustments Adjustments: changes recorded to update general ledger accounts at the end of the fiscal period.

4. Prepare Adjustments 4 Questions to Ask 1. What is the balance? 2. What should the balance be? 3. What must be done to correct the account balance? 4. What adjustment is made?

5. Adjustments 1. Supplies (supplies, supplies expense) 2. Prepaid Insurance (prepaid insurance) 3. Merchandise (merchandise inventory, income summary)

6. Merchandise Inventory 1. Inventory: the amount of goods on hand 2. Merchandise Inventory: the amount of goods for sale to customers 3. Merchandise Inventory is an ASSET

7. Merchandise Inventory Example 1. What is the balance? $225,400 (inventory) 2. What should the balance be? $212,200 (actual count) 3. What must be done to correct the balance? Decrease by $13,200 (amount used/sold) 4. What adjustment must be made? Debit Income Summary, Credit Merchandise Inventory

8. Prepare a Worksheet 4. Extend account balances  Balance Sheet: a financial statement that reports assets, liabilities, and owner’s equity on a specific date.  Income Statement: a financial statement showing revenue and expenses for a fiscal period.  The balances on a worksheet are extended to columns for the two financial statements. 5. Calculate net income or net loss  Income Statement Credit minus Income Statement Credit