UNIT 3.01 STUDY GUIDE
I.
II.
Procedures for Journalizing Departmentalized Purchases on Account, Purchase
Returns, and Cash Payments
A. Steps for journalizing purchases on account
1. Debit Purchases and the appropriate department.
2. Credit Accounts Payable and the appropriate vendor.
B. Steps for journalizing purchases returns and allowances
1. Debit Accounts Payable and the appropriate department.
2. Credit Purchases Returns and Allowances and the appropriate department.
C. Steps for journalizing cash payments with a purchase discount
1. Debit Accounts Payable and the appropriate vendor.
2. Credit Cash.
3. Credit Purchases Discount and the appropriate department.
D. Steps for journalizing the cash payment for supplies
1. Debit the appropriate asset account.
2. Credit Cash.
E. Steps for journalizing the cash payment of an expense
1. Debit the appropriate expense account.
2. Credit Cash.
Procedures for Journalizing Departmentalized Sales on Account, Sales Returns,
and Cash Receipts
A. Steps for journalizing sales on account
1. Debit Accounts Receivable and the appropriate customer.
2. Credit Sales and the appropriate department.
3. Credit Sales Tax Payable.
B. Steps for journalizing sales returns
1. Debit Sales Tax Payable.
2. Debit Sales Returns and Allowances.
3. Credit Accounts Receivable and the appropriate customer.
C. Steps for journalizing cash receipts with a sales discount
1. Debit Cash.
2. Debit Sales Discount and the appropriate department.
3. Credit Accounts Receivable and the appropriate customer.
D. Steps for journalizing cash receipts with a sales return and discount
1. Debit Cash.
2. Debit Sales Discount and the appropriate department.
3. Credit Accounts Receivable and the appropriate customer.
E. Steps for journalizing cash and credit card sales
1. Debit Cash.
2. Credit Sales Tax Payable.
3. Credit the appropriate department.
III.
Procedures for Journalizing Departmentalized Payroll-Related Transactions
A. Steps for preparing a departmentalized payroll register
1. Enter the last day of the payroll period at the top of the payroll register.
2. Record the date of the payment.
3. Enter the employee number, marital status, and number of allowances.
4. Write the total hours, regular earnings, overtime earnings, and total
earnings.
a. Department supervisors are not paid by the hour so a line is drawn
through the total hours column.
b. The amount of commission is entered in the commission column.
c. The salary amount is recorded in the Regular Earnings column.
Regular earnings are added to the commission amount to determine the
total earnings.
d. The salaries of the store manager and non-sales employees are
entered in the Administrative Salaries column.
5. Extend the total earnings to the appropriate department column or
Administrative Salaries.
6. Enter the payroll deductions.
7. Add the amounts for the deductions and enter the total.
8. After entering the net pay for all the employees, total each payroll register
amount column. Subtract the Total Deductions column from the Total
Earnings column. This amount should equal the amount of the Net Pay
column.
B. Steps for journalizing payment of a departmentalized payroll
1. Debit the appropriate salary expense account.
2. Credit the appropriate liability accounts.
C. Steps for calculating and journalizing employer payroll taxes.
1. Debit the appropriate payroll taxes expense account.
2. Credit the appropriate liability accounts.
UNIT 3.02 STUDY GUIDE
Financial statements summarize the financial information of a business. Decision
makers then analyze the financial position and progress of the business. Financial
statements are also used in preparing tax reports and other reports, such as those
required by the SEC. Normally, financial statements are prepared at least once per year.
Businesses with more than one department are called departmentalized businesses.
Department Managers receive a Departmental Statement of Gross Profit to determine
the amount of revenue remaining after the cost of sales has been deducted. Each
manager of a department is also responsible for controlling all costs incurred and sales
made for their department. A Departmental Margin Statement helps the manager
analyze these costs. These statements are prepared often throughout the year, and are
called Interim Statements.
I.
Procedures to Calculate Cost of Goods Sold and Gross Profit for a
Departmentalized Business
A. Procedures to calculate Cost of Goods Sold
1. Start with the Beginning Inventory.
2. Add Net Purchases.
3. Subtract Ending Inventory.
B. Procedures to calculate Gross Profit
1. Equals Sales less Cost of Goods Sold
2. Sales is taken directly from the General Ledger.
3. Cost of Goods Sold must be calculated.
C. Procedures to calculate Estimated Ending Inventory
1. Procedures to calculate Estimated Ending Inventory using the Gross Profit
Method
a. List Beginning Inventory.
b. Determine Net Purchases.
c. Calculate Merchandise Available for Sale.
d. Determine Net Sales.
e. Calculate Estimated Gross Profit.
f. Calculate the Estimated Cost of Merchandise Sold.
g. Calculate Estimate Ending Inventory.
2. Procedures to calculate Estimated Ending Inventory using the Retail
Method
a. List the Beginning Inventory at both cost and retail.
b. List the Net Purchases at both cost and retail.
c. Calculate Merchandise Available for Sale.
d. Calculate the cost ratio by dividing Merchandise Available for Sale –
Cost ÷ Merchandise Available for Sale – Retail.
e. Subtract Retail Sales.
f. Determine retail value of Ending Inventory.
g. Determine cost value of ending inventory by multiplying (f) above by the
cost ratio found in (d) above.
D. Procedures to Prepare a Statement of Gross Profit With Component
Percentages
1. Prepare the heading to include the company name, name of statement,
and time period for which the statement has been prepared.
2. List statement categories
3. Enter the appropriate amounts in the first department.
4. Enter the appropriate amounts in the second and subsequent departments.
5. Calculate the total amounts for each line item.
6. Calculate component percentages.
a. Sales always equals 100%.
b. Divide Cost of Merchandise Sold by Sales to get the component
percentage.
c. Divide Gross Profit by Sales to get the component percentage.
d. Do the same for each department and for the total.
II.
Procedures to Prepare a Departmentalized Worksheet
A. Extend the asset, liability, and stockholders equity Trial Balance amounts, plus
or minus the adjustments to the Balance Sheet column.
B. Extend the income summary, revenue, cost, and direct expenses, plus or
minus the adjustments, into the appropriate Departmental Income Statement
column.
C. Extend the indirect expenses to the Income Statement Debit Column.
D. Total and calculate the departmental margin for each department on the
worksheet.
E. Extend the adjusted balance of Federal Income Tax Expense and record it in
the Income Statement Debit column.
F. Total the Income Statement and Balance Sheet columns.
G. Calculate Net Income.
III.
Procedures to Prepare a Departmental/Contribution Margin Statement
A. Determine Net Sales for each department.
B. Determine Cost of Merchandise Sold for each department.
C. Calculate gross profit.
D. Record direct expenses of the department.
E. Calculate the departmental margin.
UNIT 3.03 STUDY GUIDE
I.
Procedure for Journalizing Adjusting Entries
A. Steps for journalizing Uncollectible Accounts Expense adjustment
1. Debit Uncollectible Accounts Expense.
2. Credit Allowance for Uncollectible Accounts.
B. Steps for journalizing Merchandise Inventory adjustment
1. Debit Merchandise Inventory and each department.
2. Credit Income Summary and each department.
C. Steps for journalizing Supplies adjustment
1. Debit Supplies Expense and each department.
2. Credit Supplies and each department.
D. Steps for journalizing Prepaid Insurance adjustment
1. Debit Insurance Expense.
2. Credit Prepaid Insurance.
E. Steps for journalizing Depreciation Expense adjustment
1. Debit Depreciation Expense and each department.
2. Credit Accumulated Depreciation and each department.
F. Steps for journalizing Federal Income Tax Expense adjustment
1. Debit Federal Income Tax Expense.
2. Credit Federal Income Tax Payable.
II.
Procedure for Journalizing Closing Entries
A. Steps for closing entries for income statement accounts with credit balances
(Revenue and Contra Cost Accounts)
1. Debit departmental Income Summary accounts.
2. Debit the departmental Revenue accounts.
3. Debit the departmental Contra-Cost accounts.
4. Credit Income Summary – General.
B. Steps for closing entries for income statement accounts with debit balances
(Cost, Contra-Revenue and Expense accounts)
1. Debit Income Summary – General.
2. Credit departmental Income Summary accounts.
3. Credit the departmental Contra-Revenue accounts.
4. Credit the departmental Cost Accounts.
C. Steps for the closing entry to record net income or net loss in the Retained
Earnings account
1. Debit Income Summary – General.
2. Credit Retained Earnings.
D. Steps for the closing entry for the Dividends account
1. Debit Retained Earnings.
2. Credit Dividends.
III. Procedure for Preparing a Post-Closing Trial Balance
A. After adjusting and closing entries are posted, the equality of debits and
credits needs to be proved again. This procedure shows that the equality of
debits and credits has been maintained in preparation for the new fiscal
period. A Post-Closing Trial Balance is prepared after the closing entries are
posted. The balances in the permanent accounts are listed on the postclosing trial balance. The total of the debit balances should equal the total of
the credit balances.
B. Steps to prepare a Post-Closing Trial Balance
1. List the permanent account titles.
2. Enter the debit balances in the debit column.
3. Enter the credit balances in the credit column.
4. Total the debit column and the credit column and verify that debits equal
credits.