Chapter 5—Accounting for Merchandising Operations
Study Objectives:
1. Identify the differences between a service enterprise and a merchandising
company.
2. Explain the entries for purchases under a perpetual inventory system.
3. Explain the entries for sales revenues under a perpetual inventory system.
4. Explain the steps in the accounting cycle for a merchandising company.
5. Distinguish between a multiple-step and a single-step income statement.
6. Explain the computation and importance of gross profit.
7. Determine cost of goods sold under a periodic system.
I.
Merchandising Operations
A. Introduction
1. A merchandising company is an enterprise that buys and sells goods
to earn a profit.
a) Wholesalers sell to retailers such as grocery stores, drugstores, and
restaurants. Examples of retailers would be Wal-Mart, Safeway, and
Toys “R” Us.
b) Retailers sell to consumers and usually are those who purchase goods
in bulk from manufacturers and sell them to retailers, other
wholesalers, schools and other not-for-profit institutions, and, at times,
directly to consumers. For example, retailer Walgreens might buy
goods from wholesaler McKesson HBOC; Office Depot might buy
office supplies from wholesaler United Stationers.
2. Define merchandise (or merchandise inventory)—goods held for sale
to customers in the normal course of business. Note that this includes
only goods held for resale. For example, if a grocery store decided to sell
an old display case, this would not be merchandise because grocery stores
do not normally sell display cases. But a display case would be
merchandise for a furniture store. Merchandise for one firm may be an
asset for another. The merchandise (display cases) for the furniture store
is an asset for the grocery store.
3. A merchandiser’s primary source of revenue is sales revenue or
sales.
4. Expenses for a merchandising company are divided into two
categories:
a) cost of goods sold (COGS)—total cost of merchandise sold
during the period and
b) Operating expenses (OP)—expenses incurred in the process of
earning sales revenue that are deducted from gross profit in the
income statement). Examples are sales salaries and insurance
expense.
5. Gross profit (GP) is equal to Sales Revenue less Cost of Goods Sold.
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Sales
BI
6. Income measurement process for a merchandiser:
- COGS = Gross Profit
- Operating Exp. = Net Income (Loss)
B. Operating Cycles—Operating Cycles for a service company and a
merchandiser:
1. Service Company operating cycle (to go from cash to cash) involves
performing services which may be on account involving accounts
receivable and finally receiving the cash.
2. Merchandising Company operating cycle (cash to cash) involves:
a) Buy Inventory,
b) Sell Inventory,
c) Obtain Accounts Receivable, and
d) Receive Cash.
C. Inventory Systems—Merchandising entities may use either of the
following inventory systems:
a) Perpetual System—Detailed records of the cost of each item are
maintained, and the cost of each item sold is determined from
records when the sale occurs. For example, a Ford dealership has
separate inventory records for each vehicle on the lot.
b) Record purchase of Inventory.
c) Record revenue and record cost of goods sold when the item is
sold.
d) At the end of the period, no entry is needed except to adjust
inventory for losses, etc.
2. Periodic System —Cost of goods sold is determined only at the end of
an accounting period. This system involves:
a) Record purchase of Inventory.
b) Record revenue only when the item is sold.
c) At the end of the period, you must compute cost of goods sold
(COGS):
1) Determine the cost of goods on hand at the beginning of the
accounting period (Beginning Inventory = BI),
2) Add it to the cost of goods purchased (COGP),
3) Subtract the cost of goods on hand at the end of the accounting
period (Ending Inventory = EI) illustrated as follows:
+ COGP = Cost of goods available for sale - EI = COGS
3. Additional Considerations
a) Perpetual systems have traditionally been used by companies that
sell merchandise with high unit values such as automobiles,
furniture, and major home appliances. But with the use of
computers and scanners, many companies now use the perpetual
inventory system.
b) The perpetual inventory system is named because the accounting
records continuously—perpetually—shows the quantity and cost
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of the inventory that should be on hand at any time. The periodic
system only periodically updates the cost of inventory on hand.
c) A perpetual inventory system provides better control over
inventories than a periodic inventory since the records always
show the quantity that should be on hand and then any shortages
from the actual quantity and what the records show can be
investigated immediately.
II.
Recording Purchases and Sales of Merchandise under the
Perpetual System
A. PURCHASES OF MERCHANDISE: MERCHANDISE PURCHASE
ENTRIES FOR A MERCHANDISER (PERPETUAL SYSTEM):
1. When merchandise is purchased for resale to customers, the account,
Merchandise Inventory, is debited for the cost of goods purchased.
2. Like sales, purchases may be made for cash or on account (credit).
3. The purchase is normally recorded by the purchaser when the goods
are received from the seller.
a) Each credit purchase should be supported by a purchase invoice.
b) A purchase invoice received by the buyer is actual a sales invoice
prepared by the seller.
c) Note that only purchases of merchandise are debited to
Merchandise Inventory. Purchases if other assets: supplies,
equipment, and similar items) are debited to their respective
accounts.
B. PURCHASE RETURNS AND ALLOWANCES
1. A purchaser may be dissatisfied with merchandise received because
the goods
a) 1) are damaged or defective,
b) 2) are of inferior quality, or
c) 3) are not in accord with the purchaser’s specifications.
2. The purchaser initiates the request for a reduction of the balance due
through the issuance of a debit memorandum.
3. The debit memorandum is a document issued by a buyer to inform a
seller that the seller’s account has been debited because of
unsatisfactory merchandise.
4. A purchase return or a purchase allowance (a deduction from the
purchase price when unsatisfactory goods are kept) is shown by the
entry where Accounts Payable is debited and Merchandise Inventory is
credited to show that the cost of the Merchandise Inventory is
reduced with a return or an allowance.
C. ACCOUNTING FOR FREIGHT COSTS
1. The sales agreement should indicate whether the seller or the buyer is
to pay the cost of transporting the goods to the buyer’s place of
business. FOB SHIPPING POINT AND FOB DESTINATION:
a) FOB Shipping Point
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1) Goods placed free on board (FOB) the carrier by seller.
2) Buyer pays freight costs.
a. Merchandise Inventory is debited if buyer pays freight.
b. Cash is a credit if the goods come COD, for example, and
paid immediately. Accounts Payable would be credited if
on account.
b) FOB Destination
1) Goods placed free on board (FOB) at buyer’s business.
2) Seller pays freight costs.
2. Freight-out (or Delivery Expense) is debited if seller pays freight
on outgoing merchandise to a buyer which is an operating expense to
the seller.
D. PURCHASE DISCOUNTS:
1. Credit terms (specify the amount of cash discount and time period
during which a discount is offered) may permit the buyer to claim a
cash discount for the prompt payment of a balance due. If the credit
terms show 2/10, n/30 means a 2% is paid within 10 days (called the
discount period); otherwise the invoice is due in 30 days.
2. The buyer calls this discount a purchase discount.
3. Like a sales discount, a purchase discount is based on the invoice cost
less returns and allowances, if any.
4. A buyer should usually take all available discounts.
a) Refer to the example:
1) If Sauk Stereo takes the discount, it pays $70 less in cash
($3,500 x 2%).
2) If it forgoes the discount and invests the $3,500 for 20 days at
10% interest, it will earn only $19.06 in interest.
3) The savings obtained by taking the discount is calculated as
follows:
Discount of 2% on $3,500
$70.00
Interest received on $3,430 (for 20 days @ 10%)
(19.06)
Savings by taking the discount
$50.94
E. SALES TRANSACTIONS: REVENUE ENTRIES FOR A
MERCHANDISER:
1. Revenues are reported when earned in accordance with the revenue
recognition principle, and in a merchandising company, revenues
are earned when the goods are transferred from seller to buyer.
2. All sales should be supported by a document such as a cash register
tape (provide evidence of cash sales) or sales invoice.
3. Two entries are made with each sale:
a) The first entry records the sale:
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1) Debit—Accounts Receivable (if a credit sale) or Cash (if a
cash sale) which increases assets for the sales amount.
2) Credit—Sales which increases revenues
b) The second entry records the cost of the merchandise sold:
1) Debit—Cost of Goods Sold which increases expenses.
2) Credit—Merchandise Inventory which decreases assets.
4. The sales account is credited only for sales of good held for
resale. Sales of assets not held for resale (such as equipment,
buildings, land, etc.) are credited directly to the asset account.
F. FREIGHT TERMS: FOB DESTINATION—SELLER PAYS FREIGHT
1. An entry is made when seller pays the freight to deliver goods to a
customer or buyer.
2. Debit—Freight Out or Delivery Expense and credit—Cash or
Accounts Payable.
G. SALES RETURNS AND ALLOWANCES:
1. Sales Returns result when customers are dissatisfied with
merchandise and are allowed to return the goods to the seller for
credit or a refund.
2. Sales Allowances result when customers are dissatisfied, and the seller
allows a deduction from the selling price.
3. To grant the return or allowance, the seller prepares a credit
memorandum to inform the customer that a credit has been made to
the customer’s account receivable.
4. Sales Returns and Allowances is a contra revenue account to the
Sales account.
a) A contra account is used, instead of debiting sales, to disclose in
the accounts the amount of sales returns and allowances.
b) This information is important to management as excessive returns
and allowances suggest inferior merchandise, inefficiencies in
filling orders, errors in billing customers, and mistakes in delivery
or shipment of goods.
5. The normal balance of Sales Returns and Allowances is a debit.
6. Two entries are made with each sale return and allowance:
a) The first entry records the sales return or allowance::
1) Debit—Sales Return and Allowances which decreases
revenues for the amount of the sale.
2) Credit—Accounts Receivable (if a credit sale) or Cash (if a
cash sale) which decreases assets.
b) The second entry records the increase in Merchandise
Inventory:
1) Debit—Merchandise Inventory which increases assets.
2) Credit—Cost of Goods Sold which decreases expenses.
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H. SALES DISCOUNTS—:
1. A sales discount is the offer of a cash discount to a customer for the
prompt payment of a balance due.
2. Example: If a credit sale has the terms 3/10, n/30, a 3% discount is
allowed if payment is made within 10 days. After 10 days there is no
discount, and the balance is due in 30 days.
3. Sales Discounts is a contra revenue account with a normal debit
balance.
4. Credit terms specify the amount and time period for the cash
discount.
5. They also indicate the length of time in which the purchaser is
expected to pay the full invoice price.
III.
Completing the Accounting Cycle
A. Adjusting Entries
1. A merchandiser has the same adjusting entries as a service company.
2. But a merchandiser will have one additional adjustment to make the
records agree with the actual inventory on hand.
a) The perpetual inventory records may be incorrect due to a variety
of causes such as recording errors, theft, or waste.
b) The adjusting entry involves adjusting Merchandise Inventory
and Cost of Goods Sold.
1) An example follows of the adjusting entry to adjust if book
amount is higher than the inventory amount determined to be
on hand.
2) The entry is a debit Cost of Goods Sold and credit
Merchandise Inventory.
B. Closing Entries are completed at the end of the fiscal year are
journalized into the general journal and posted to the general ledger to:
1. Reduce the temporary owner's equity accounts (revenues, expenses,
and drawing) to zero; and
2. To update the balance in the owner's equity capital account to begin
the next fiscal year.
3. Recall from chapter 4 that this is a 4-step process following the
acronym REID (Revenue, Expenses, Income Summary, and Drawing).
Refer to the work sheet on page 221 which is a tool to help complete the
closing entries. A merchandising company also uses the 4-step (4
entries) process for the closing entries but the descriptions of REID
will be expanded to include all the accounts in a particular column:
a) The first step for the "R" is to close the revenue accounts and
those accounts that act as revenues (meaning they have "credit"
balances on the credit column of the Income Statement columns of
the work sheet) into the Income Summary account.
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b) The second step for the "E" is to close the expense accounts and
those accounts that act as expenses (meaning they have "debit"
balances on the debit column of the Income Statement columns of
the work sheet) into the Income Summary account.
c) The third step for the "I" is to close the Income Summary
account. If the Income Summary account has a "credit balance,"
then the company has a NET INCOME or if the balance in the
account is a "debit balance," then the company has a NET LOSS.
The balance in the INCOME SUMMARY account should be
compared with the net income figure on the work sheet or the net
loss figure on the work sheet as they should be the same number if
you properly closed all the revenue and expense accounts.
Compare the "credit" balance of $30,000 in the Income Summary
account below to the $30,000 net income figure on the Work Sheet.
INCOME SUMMARY
Total expenses
450,000
480,000 Total revenues
Entry to close acct.
Balance of Inc. Sum. acct.
30,000
30,000
Final bal. of acct.
Final bal. of acct.
--------a) The fourth step for the "D" is to close the drawing account by
debiting the owner's capital account and crediting the owner's
drawing account.
IV.
Forms of Financial Statements
A. MULTIPLE-STEP INCOME STATEMENT
1. Includes sales revenue, cost of goods sold and gross profit sections.
a) Net Sales = Sales – Sales returns and allowances and Sales
Discounts.
Note: Freight-out is a selling expense—not a contra account to sales.
b) Gross Profit = Net sales – Cost of goods sold. An example showing
the determination of gross profit as follows:
Net sales
- Cost of goods sold
= Gross profit
460,000
- 316,000
144,000
2. Operating expenses may be subdivided into:
a) Selling Expenses.
b) Administrative Expenses.
3. Additional nonoperating sections may be added for:
a) Nonoperating sections are reported after income from operations
and are classified in two sections.
b) Revenues and expenses resulting from secondary or auxiliary
operations.
1) Other revenues and gains.
2) Other expenses and losses.
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c) Gains and losses unrelated to operations. Other Revenues and
Gains in one column and Other Expenses and Losses in the other
column.
4. MULTIPLE-STEP VS. SINGLE-STEP INCOME STATEMENT
showing the formulas for the multiple-step income statement:
a) Net sales – Cost of goods sold = Gross profit
b) – Operating expenses = Income from operations
c) + Other revenues/gains – Other expenses/losses = Net
income or Net loss.
5. An example for the determination of net incomefrom gross profit as
follows:
Gross profit
- Total operating expenses
= Income from operations
+ Other revenues and gains
- Other expenses and losses
= Net income
144,000
- 114,000
30,000
+ 3,600
- 2,000
$31,600
B. SINGLE-STEP INCOME STATEMENT
1. All data are classified under two categories:
a) (1) Revenues
b) (2) Expenses
2. Only one step is required in determining net income or net loss—
Revenues – Expenses = Net Income.
3. Two primary reasons for using a single step format:
a) (1) A company does not realize any type of profit or income until
total revenues exceed total expenses, so it makes sense to divide the
statement into two categories.
b) (2) The format is simpler and easier to read than the multiple-step
format.
C. CLASSIFIED BALANCE SHEET.
1. Current assets are listed in the order of liquidity.
2. Merchandise Inventory is less liquid than accounts receivable
because the goods must first be sold and then collection must be made
from the customer.
3. Merchandise Inventory is reported as a current asset immediately
below accounts receivable.
V.
Determining Cost of Goods Sold Under a Periodic System
A. An important Cost of Goods Sold calculation that is tested backwards and
forwards (but on exam that is sent in so does NOT have to be memorized) on
the certified bookkeeper's (CB) exam):
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B. Under the Periodic system, separate accounts are used to record freight
costs, returns, and discounts.
C. Under the Perpetual system all transactions affecting the cost of
merchandise purchased is recorded directly into Merchandise Inventory
account.
D. Also under the Periodic system, a running account of changes in inventory
is not maintained. Therefore, the balance in ending inventory (done by
taking a physical inventory), as well as the cost of goods sold for the
period, is calculated at the end of the period.
E. To memorize the cost of goods sold calculation, it is helpful to first
learn the OUTLINE OF THE COST OF GOODS SOLD SECTION (also
helpful to use acronyms for the words that are used):
1. Beginning inventory (BI)
2. + Cost of goods Purchased (COGP) Gross purchases - Purchase
returns & allowances - Purchase discounts + Freight-in)
3. = Goods available for sale (GAFS)
4. - Ending inventory (EI)
5. = Cost of goods sold (COGS)
Note below the outline of the Cost of goods sold is bolded:
Cost of goods sold:
Inventory, January 1
$36,000
Purchases
$325,000
Less: Purchases returns and
$10,400
allowances
Purchases discounts
6,800
17,200
Net purchases
307,800
Add: Freight in
12,200
Cost of goods purchased
320,000
Cost of goods available for sale
356,000
Inventory, December 31
40,000
Cost of goods sold
316,000
A helpful tip to memorize the COGS calculation is to practice with 4 columns where
you just use the acronyms in the columns as well as the plus and minus signs so you
can visualize where the different numbers go as you move from the beginning of the
year to the end of the year (NOTE that the format moves in a stair-step
arrangement backwards to purchases returns and allowances and then forwards
down to cost of goods sold) (the xxx's represent a number that does not have a word
to describe it):
Cost of goods sold:
BI
P
P R&A
+ PD
- xxx
9
NP
+ FI
+COGP
GAFS
- EI
COGS
VI.
Periodic Inventory System
A. Perpetual vs. Periodic Inventory systems comparisons:
1. With both systems, revenues from the sale of merchandise are
recorded when sales are made.
2. But with the periodic system, no attempt is made on the date of sale to
record the cost of the merchandise sold.
3. Under the periodic system, a physical inventory is taken at the end of
the period and this count determines:
a) (1) the cost of merchandise on hand and
b) (2) the cost of goods sold during the period as ending inventory is
part of the cost of goods sold calculation.
4. Under the periodic system, purchases of merchandise are recorded in
a Purchases account rather than a Merchandise Inventory account.
5. Under the periodic system, it is customary to record the following in
separate accounts:
a) Purchase Returns and Allowances,
b) Purchase Discounts
c) Freight-in
B. Recording Transactions Under a Periodic Inventory System
1. Recording Purchases of Merchandise
a) Purchases—Purchases is a temporary account whose normal
balance is a debit and located under the Expense section of the
accounting equation.
b) Purchase Returns and Allowances—Purchases Returns and
Allowances is a temporary contra expense account with a normal
credit balance.
c) Freight Costs—Freight-in is a temporary account whose normal
balance is a debit balance under the expense section along with the
Purchases account. This account is used with the term are FOB
Shipping Point and a cost paid by the buyer to bring the goods to
the purchaser.
d) Purchase Discounts—Purchases Discounts is a temporary contra
expense account with a normal credit balance.
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2. Recording Sales of Merchandise
a) Sales—there is just one entry to record the sale. Under the
periodic inventory system is NO second entry to record the cost of
goods sold. Sales is a revenue account with a normal credit
balance.
b) Sales Returns and Allowances—the same entry made under the
perpetual system. Note there is NO second entry to record the
return of the Merchandise Inventory with the cost of goods sold as
done under the perpetual system. Sales Returns and Allowances is
a contra revenue account with a normal debit balance.
c) Sales Discounts—to record the payment from a customer within
the discount period would be the same entry under the perpetual
system. Sales Discounts is a contra revenue account with a normal
debit balance
VII.
Work Sheet for a Merchandiser
A. Introduction—as indicated in Chapter 4, a work sheet is prepared to:
1. To help with the adjusting process;
2. To help with the preparation of the financial statements; and
3. To help with preparing of the closing entries.
B. Trial Balance Columns:
1. Data from the trial balance are obtained from the ledger balances of
PW Audio Supply at December 31.
2. The amount shown for Merchandise Inventory, $40,500, is the yearend inventory amount which results from the application of a
perpetual inventory system.
3. Note the accounts in red that are the new accounts used for the
merchandising company under the perpetual inventory system.
4. As was covered in chapter 4, a separate trial balance is not prepared as we
use the first two columns of the worksheet for this initial trial balance (a
listing of all ledger accounts to test the equality of debits and credits).
5. Also recall that the format #2 will include all accounts that will be needed
for the adjusting process are also included in this listing of the general
ledger accounts that are listed in chart of account (general ledger) order.
6. Remember that the work sheet is started by entering the heading as shown
on page 208 which has the answers to the questions, "who," "what," and
"when," where the answer to the "when" must be a period of time as the
work sheet's bottom line is to disclose the amount of net income or net
loss for the period.
C. Adjustments Columns
1. A merchandising company usually has the same types of adjustments
as a service company
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2. Work sheet adjustments (b), (c), and (d) are for insurance,
depreciation, and salaries.
3. Adjustment (a) was required to adjust the perpetual inventory
carrying amount to the actual count.
4. The Adjustments columns like the Trial Balance columns, must be
proved before the work sheet can be continued by adding the debit
and credit columns so see that they balance.
D. Adjusted Trial Balance
1. The adjusted trial balance shows the balance of all accounts after
adjustment at the end of the accounting period.
2. Review and describe how adjustments are carried to the Adjusted
Trial Balance columns:
a) Accounts without adjustments. If an account does not have an
adjustment, simply carry over the Trial Balance figure to the
appropriate Adjusted Trial Balance column.
b) Accounts without balances on the trial balance. If an account
does not have a balance in the Trial Balance columns, but there is an
adjustment, the amount of the adjustment becomes the balance on the
adjusted trial balance.
c) Merchandise Inventory. On the adjusted trial balance, the
Merchandise Inventory account shows the December 31 Inventory
count as adjusted to agree with the physical inventory count.
d) Accounts that had adjustments to their previous balance. When
extending amounts to the adjusted trial balance from the trial balance,
a debit with a debit adjustment has the two debits added together.
Likewise an account with a credit balance on the trial balance is
added to a credit adjustment when extended to the adjusted trial
balance. A debit balance on the trial balance with a credit adjustment
will be subtracted to extend to the adjusted trial balance or a credit
balance with a debit adjustment will be subtracted to extend to the
adjusted trial balance.
E. Income Statement Columns
1. The accounts and balances that affect the income statement are
transferred from the adjusted trial balance columns to the income
statement columns for PW Audio Supply at December 31.
2. All of the amounts in the income statement credit column should be
totaled and compared to the total of the amounts in the income
statement debit column.
F. Balance Sheet Columns
1. The major difference between the balance sheets of a service company
and a merchandising company is inventory.
2. For PW Audio Supply, the ending Merchandise Inventory amount of
$40,000 is shown in the balance sheet debit column.
3. The information to prepare the owner’s equity statement is also found
in these columns.
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G. Review the determination of net income or loss and completion of the
work sheet. Recall from Chapter 4 that after the amounts are extended to the
income statement and balance sheet columns that you add the columns down,
and rule them. As you can see, a net income figure appears on the debit
column of the income statement and the credit column of the balance sheet.
The reason it shows on the credit column of the balance sheet is that a net
income increases owner’s capital and owner’s capital increases on the
credit side. Note that owner’s capital is bolded to emphasize why the net
income appears on the credit side of the balance sheet columns. Below is the
work sheet for PW Audio Supply showing format #2: where the balance sheet
accounts are above the bold line and the income statement below it:
PW Audio Supply
Work Sheet
For the Year Ended December 31, 20-Account
Titles
Cash
AcctsRec.
MerchInv
Prepd Ins.
Str.Equip
A/D StrEq
Accts.Pay.
Sal. Pay.
RAL, Cap..
RAL, Draw
Sales.
Sales R&A
Sales Disc
COGS
Freight Out
Adv.Exp.
AdmSal.xp.
StrSalExp
Util.Exp.
Ins.Exp.
DepEx. SE
Net Income
Trial Balance
Debit
Credit
9,500
→
16,100
→
40,500
→
3,800
→
80,000
→
16,000
20,400
0
83,000
15,000
→
480,000
7,000
16,000
19,000
40,000
17,000
0
0
→
→
→
→
→
→
→
→
→
→
599,400
599,400
→
→
12,000
8,000
315,500
Adjustments
Debit
Credit
→
→
→
→
→ (a) 500
→ (b)2000
→
→
→ (c)8000
→
→
→ (d)5000
→
→
→
→
→
→
→
→
→
→
a) 500
→
→
→
→
→
→
→
(d)5000
→
→
→
(b2000
→
(c)8000
→
15,500
15,500
→
→
Adj. Trial Balance
Debit
Credit
9,500
→
16.100
→
40,000
→
1,800
→
80,000
→
→
24,000
→
20,400
→
5,000
→
83,000
15,000
→
→ 480,000
12,000
→
8,000
→
316,000
→
7,000
→
16,000
→
19,000
→
45,000
→
17,000
→
2,000
→
8,000
→
Income Statement
Debit
Credit
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→ 480,000
12,000
8,000
Balance Sheet
Debit
Credit
8,485
300
40,000
1,800
80,000
→
24,000
→
20,400
→
5,000
→
83,000
15,000
612,400
612,400
450,000
480,000
162,400
→
→
30,000
→
→
30,000
480,000
480,000
162,400
162,400
316,000
800
50
1,260
45,000
17,000
2,000
8,000
132,400
H. Note that in an Excel template, you can use IF functions to
automatically calculate a net income or a net loss depending on whether
revenues are greater than expenses or vice versa. Also you can set an IF
function to automatically writes the words, “Net income” or “Net loss”
depending on whether revenues are greater than expenses or vice versa.
Having these formulas in a work sheet along with others can aid the
preparation of a work sheet in just a few minutes and allow for quick
changes to be made.
I. Also spreadsheets can be used to link the financial statements to the work
sheet so that they can be prepared instantly when a work sheet is
prepared.
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