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