VT: Accounting Cycle Steps 5 & 8: Adjusting &
Closing Entries to Income Summary (Perpetual
Method)
Wednesday, 9 December 2020
9:38 PM
Merchandisers' Adjusting Entries
- mostly the same as service firms with one additional entry
- inventory account might require adjustment
Inventory Adjusting Entries:
- at least once a year, inventory is physically counted to make sure that the
inventory account balance is correct. if it's different, then adjusting entry is
required to correct is
- sometimes is reversed but is usually correcting an error rather than a true
adjusting entry
EXAMPLE
Assume that Championship Vinyl has an unadjusted balance of 20,500 in
Inventory.
After a physical count, Championship Vinyl determines that its actual
merchandise inventory at year-end is 19,000.
Date
Account Names Debit
COGS
Inventory
Credit
1500
1500
Merchandiser's Closing Entries
- same as service firms expect additional temporary accounts
temporary accounts:
• Sales Returns & Allowances
• Sales Discount
• Cost of Goods Sold
these accounts all have normal debit balances so they are closed with
credits and are included in the expense closing entries.
CLOSE REVENUES TO INCOME SUMMARY
• Sales Returns & Allowances
• Sales Discount
• Cost of Goods Sold
these accounts all have normal debit balances so they are closed with
credits and are included in the expense closing entries.
CLOSE REVENUES TO INCOME SUMMARY
CLOSE EXPENSES TO INCOME SUMMARY
CLOSE INCOME SUMMARY TO RETAINED EARNINGS
CLOSE DIVIDENDS TO RETAINED EARNINGS