Worksheet for merchandising business

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10.3 Work Sheet for a
Merchandising Business
• As you already know, the figures for the
financial statements are obtained from a
completed work sheet. Therefore, you must
learn to handle three new merchandising
accounts on the work sheet.
Merchandise
Inventory
72 074
The value (at cost) of
the merchandise on
hand at the
beginning of the
fiscal period
Purchases
210 853
The total cost of all
merchandise
inventory purchased
during the fiscal
period
Freight-in
5 731
The total
transportation costs
of bringing the goods
into the business
• You will see these new accounts on the partial
work sheet in Figure 10.4 below. Notice the
three-step procedure used by the accountant
who prepared the work sheet. First, the
beginning inventory was extended to the debit
column of the income statement.
• In the second step, ending inventory-obtained by a physical count-- was entered in
both the credit column of the income
statement and in the debit column of the
balance sheet.
• And third, the amounts for Freight-in and
Purchases were transferred to the debit
column of the income statement.
• The third step shown below is not out of the
ordinary. But consider how Merchandise
Inventory was treated in the first and second
steps. Why did the accountant transfer an
asset to the income statement? And why is
the year-end count of inventory entered in
both the income statement and balance sheet
section of the work sheet?
Work Sheet
Accounts
Merchandise Inventory
Trillum Trading Co. Year Ended December 31, 20Trial Balance
Adjustments
Income Statement
DR
CR
DR
CR
DR
CR
72,074.00
Balance Sheet
DR
CR
72,074.00 83,562.00 83,562.00
Freight-in
5,731.00
5,731.00
Purchases
210,853.00
210,853.00
Step 1:
Step 2:
Step 3:
Beginning inventory is
extended to the
Income Statement
debit column
Both Purchases and
freight-in are
extended to the
Income Statement
debit column
Ending inventory obtained
by a physical inventory is
entered in two columns:
the Income Statement
credit column and the
Balance Sheet debit column
Work Sheet
Accounts
Bank
Accounts Receivable
Merchandise Inventory
Supplies
Prepaid Insurance
Equipment
Accum. Depre.- Equipment
Automobile
Accum Depre. - Automobiles
Accounts Payable
HST Payable
HST Recoverable
Bank Loan
R, Kehow, Capital
R. Kehow, Drawings
Sales
Advertising Expense
Bank Charges Expense
Car Expense
Delivery Expense
Freight-in
Miscellanous Expense
Purchases
Rent Expense
Salaries Expense
Telephone Expense
Utilities Expense
Trillum Trading Co.
Trial Balance
DR
CR
72,074.00
Year Ended December 31, 20Adjustments
Income Statement
DR
CR
DR
CR
BEGINNING
72,074.00
5,731.00
5,731.00
210,853.00
210,853.00
83,562.00
Balance Sheet
DR
CR
83,562.00
Work Sheet
Accounts
Bank
Accounts Receivable
Merchandise Inventory
Supplies
Prepaid Insurance
Equipment
Accum. Depre.- Equipment
Automobile
Accum Depre. - Automobiles
Accounts Payable
HST Payable
HST Recoverable
Bank Loan
R, Kehow, Capital
R. Kehow, Drawings
Sales
Advertising Expense
Bank Charges Expense
Car Expense
Delivery Expense
Freight-in
Miscellanous Expense
Purchases
Rent Expense
Salaries Expense
Telephone Expense
Utilities Expense
Wages Expense
Supplies Expense
Insurance Expense
Dep. Expense - Automobile
Dep. Expense- Equipment
Net Income
Trial Balance
DR
CR
4,072.00
25,690.00
Trillum Trading Co.
Adjustments
DR
CR
72,074.00
2,840.00
4,242.00
24,316.00
Year Ended December 31, 20Balance Sheet
DR
CR
4,072.00
25,690.00
Income Statement
DR
CR
72,074.00
83,562.00
2,560.00
2,915.00
8,754.00
3,112.00
19,082.00
12,780.00
4,700.00
5,500.00
565.00
83,562.00
280.00
1,327.00
24,316.00
11,866.00
37,416.00
37,416.00
24,582.00
13,345.00
4,700.00
1,650.00
1,650.00
10,000.00
97,228.00
10,000.00
97,228.00
40,000.00
40,000.00
377,508.00
1,141.00
2,651.00
4,749.00
1,377.00
250.00
5,731.00
1,507.00
210,853.00
12,000.00
24,000.00
1,850.00
3,673.00
48,220.00
530,052.00
377,508.00
1,141.00
2,651.00
4,999.00
1,377.00
5,731.00
1,822.00
315.00
210,853.00
12,000.00
24,000.00
1,850.00
3,673.00
48,220.00
Comes from
the Income
Statement
530,052.00
2,560.00
2,915.00
5,500.00
3,112.00
14,652.00
14,652.00
2,560.00
2,915.00
5,500.00
3,112.00
404,478.00
56,592.00
461,070.00
218,313.00
161,721.00
56,592.00
Closing Entries
Date
Particulars
20--
Dec 31 Revenue
Ending Inventory
Income Summary
31 Income Summary
Beginning Inventory
Purchases
Freight-in
Operating Expense
PR Debit
Credit
377,508.00
83,562.00
461,070.00
404,478.00
72,074.00
210,853.00
5,731.00
1,141.00
31 Income Summary
R.K., Capital
56,592.00
31 R.K., Capital
R.K., Drawings
40,000.00
56,592.00
40,000.00
Closing Merchandising Inventory in the
ledger
Merchandising Inventory
OB
1
72,074.00
83,562.00
72,074.00 2
83,562.00
Balance Sheet
Ending Inventory
Post-closing Trial Balance
(Merchandising Inventory)
• Bok Trading p. 414 (t), p. 332-335 (w)
a) Worksheet p. 332
– Add or subtract adjustments
– Put in appropriate financial statements
b)Income Statement p. 333
– Include: Revenue, Cost of Goods Sold, Expenses
– Revenue – COGS = Gross Profit
– Gross Profit – Expenses = Net Income
c) Balance Sheet p. 334
– Merchandise Inventory  Current Asset
d) Closing entries p. 335
– Refer to yesterdays Closing Journal Note
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