Heintz & Parry 20th Edition
College Accounting Chapter 14
Adjustments and the Work Sheet for a Merchandising Business 1
Prepare an adjustment for merchandise inventory using the periodic inventory system. WORK SHEET OF A MERCHANDISING BUSINESS
• Is similar to a service business work sheet
• Used to record adjustments – Includes adjustments for: • Merchandise inventory • Unearned revenue
• Used to prepare financial statements ADJUSTMENT FOR MERCHANDISE INVENTORY EXAMPLE: Ponder’s Bike Parts had a beginning merchandise inventory of $25,000. At the end of the accounting period, a physical inventory of the merchandise determined that merchandise costing $30,000 was still on hand. ADJUSTMENT FOR MERCHANDISE INVENTORY
• More inventory at the END than at the BEGINNING of the year? ADJUSTMENT FOR MERCHANDISE INVENTORY
• More inventory at the END than at the BEGINNING of the year?
When PURCHASES EXCEED SALES, the inventory balance is HIGHER at the end of the year. ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY BEG. BALANCE $25,000 ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY $25,000
This account is NOT changed during the accounting period. ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY PURCHASES $25,000 XXX
Merchandise bought during the year is debited to Purchases instead of Merchandise Inventory. ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY PURCHASES $25,000 XXX SALES XXX
The COST of merchandise sold is NOT recorded. The selling price is credited to the sales account. ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY $25,000
After a year of purchasing and selling merchandise, the balance is no longer accurate. ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY $25,000
An adjustment is needed to update the balance of the merchandise inventory account. ADJUSTMENT FOR MERCHANDISE INVENTORY
MERCHANDISE INVENTORY $25,000
TWO-STEP ADJUSTMENT! Ponder’s Bike Parts Work Sheet (partial) For Year Ended December 31, 20-- TRIAL BALANCE ACCOUNT TITLE DEBIT CREDIT
Merchandise Inventory 25,000 Income Summary Purchases 80,000 Purchases Returns and Allowances 1,000 Purchases Discounts 500 Freight-In 700
Let’s look at the adjustment on a partial work sheet.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Merchandise Inventory 25,000 Income Summary Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In 700
Step #1 REMOVE BEGINNING INVENTORY
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Merchandise Inventory 25,000 (a) 25,000 Income Summary Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In By crediting700 Merchandise Inventory, the balance is reduced to zero.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Merchandise Inventory 25,000 (a) 25,000 Income Summary (a)25,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In 700 The corresponding debit is to Income Summary.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Merchandise Inventory 25,000 (b) 30,000 (a) 25,000 Income Summary (a) 25,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In STEP700 #2 INSERT ENDING INVENTORY
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Merchandise Inventory 25,000 (b) 30,000 (a) 25,000 Income Summary (a) 25,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-InThe balance in the Merchandise700 Inventory account now reflects the actual amount of inventory on hand at the end of the year.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Merchandise Inventory 25,000 (b) 30,000 (a) 25,000 Income Summary (a) 25,000 (b) 30,000 Purchases 80,000 Purchases Ret. and Allow. 1,000 Purchases Discounts 500 Freight-In Income Summary700 is credited.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 25,000 (b) 30,000(a)25,000 30,000 Income Sum. (a)25,000(b) 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700
The new balance is extended to the Adjusted Trial Balance columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 25,000 (b) 30,000(a) 25,000 30,000 Income Sum. (a) 25,000(b) 30,000 25,000 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700
BE CAREFUL WITH INCOME SUMMARY!!! BOTH the beginning and ending inventory amounts are extended to the Adjusted Trial Balance columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 25,000 (b) 30,000(a) 25,000 30,000 Income Sum. (a)25,000(b) 30,000 25,000 30,000 Purchases 80,000 80,000 Purch. R & A 1,000 1,000 Purch. Disc. 500 500 Freight-In 700 700
The other accounts are extended with no adjustments.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700
Merchandise Inventory is extended to the Balance Sheet columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 25,000 30,000 Purchases 80,000 Purch. R & A 1,000 Purch. Disc. 500 Freight-In 700
For the Income Summary account, BOTH the beginning and ending inventory amounts are extended to the Income Statement columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 25,000 30,000 Purchases 80,000 80,000 Purch. R & A 1,000 1,000 Purch. Disc. 500 500 Freight-In 700 700
Since the Purchases, Purchases Returns and Allowances, Purchase Discounts, and Freight-In Accounts are income statement accounts, they are extended to the Income Statement columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT ADJUST. T/B INCOME STMT. BALANCE SHEET TITLE DR. CR. DR. CR. DR. CR.
Merch. Inv. 30,000 30,000 Income Sum. 25,000 30,000 25,000 30,000 Purchases 80,000 80,000 Purch. R & A 1,000 1,000 Purch. Disc. 500 500 Freight-In 700 700
Cost of goods sold can be computed from the Income Statement columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000
From the income summary account on the work sheet.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc. 500 1,500 Net purchases $78,500
Before we can combine Purchases and beginning inventory, we must subtract the contra-purchases accounts to determine net purchases.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc. 500 1,500 Net purchases $78,500 Add freight-in 700 Cost of goods purch. 79,200
Freight-in is added to net purchases to determine the cost of goods purchased.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc. 500 1,500 Net purchases $78,500 Add freight-in 700 Cost of goods purch. 79,200 Goods available for sale $104,200
Cost of goods purchased is added to the beginning inventory to determine goods available for sale.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of goods sold: Merch. inv., January 1 $25,000 Purchases $80,000 Less: Purchases R & A $1,000 Purchases disc. 500 1,500 Net purchases $78,500 Add freight-in 700 Cost of goods purch. 79,200 Goods available for sale $104,200 Less merch. inv., Dec. 31 30,000 Cost of goods sold $74,200
Merchandise still on hand at the end of the year is subtracted from the amount available for sale to determine the cost of goods sold.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2
Prepare an adjustment of unearned revenue. ADJUSTMENT FOR UNEARNED REVENUE
EXAMPLE: Brown County Playhouse sells season tickets. Tickets sell for $10 for each play ($50 for a 5-play season ticket) and a maximum of 1,000 seats can be sold for each play. Let’s assume that all shows sell out during the first week that season tickets are available. ADJUSTMENT FOR UNEARNED REVENUE
UNEARNED TICKET REVENUE $50,000
When season tickets are sold, Cash is debited and Unearned Ticket Revenue is credited. ADJUSTMENT FOR UNEARNED REVENUE
UNEARNED TICKET REVENUE $50,000
Following the production of the third show, financial statements are to be prepared. ADJUSTMENT FOR UNEARNED REVENUE
UNEARNED TICKET REVENUE $50,000
An adjusting entry is needed to recognize the ticket revenue earned for the three shows. ADJUSTMENT FOR UNEARNED REVENUE
UNEARNED TICKET REVENUE TICKET REVENUE $50,000 $30,000
3 shows × 1,000 tickets for each show = 3,000 tickets 3,000 tickets × $10 per ticket = $30,000 ADJUSTMENT FOR UNEARNED REVENUE
UNEARNED TICKET REVENUE TICKET REVENUE $50,000 $30,000 $30,000
$30,000 in earned revenue is removed from the unearned account and put into the revenue account. ADJUSTMENT FOR UNEARNED REVENUE
UNEARNED TICKET REVENUE TICKET REVENUE $50,000 $30,000 $30,000 $20,000 Bal.
The remaining balance of $20,000 in Unearned Ticket Revenue is reported as a current liability on the balance sheet. CHART OF ACCOUNTS FOR NORTHERN MICRO
Let’s review the chart of accounts for a merchandising business!
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO Assets Current Assets 101 Cash 122 Accts. Rec. Assets now include 131 Merch. Inv. 141 Supplies Merchandise Inventory. 145 Prepaid Ins.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO Assets Current Assets 101 Cash 122 Accts. Rec. 131 Merch. Inv. 141 Supplies 145 Prepaid Ins.
Property, Plant, & Equip. 161 Land 171 Building 171.1 Acc. Depr.–Bldg. 181 Store Equipment 181.1 Acc. Depr.–Store Eq. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO
Liabilities Current Liabilities 201 Notes Payable 202 Accounts Payable 219 Wages Payable 231 Sales Tax Payable 241 Unearned Sub. Rev.
Long-Term Liabilities 251 Mortgage Payable
Owner’s Equity 311 G. L. Fishel, Capital 312 G. L. Fishel, Drawing ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO
231 Sales Tax Payable 241 Unearned Sub. Rev.
Long-Term Liabilities 251 Mortgage Payable
Owner’s Equity 311 G. L. Fishel, Capital 312 G. L. Fishel, Drawing 313 Income Summary
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO
Assets Revenue Current Assets 401 Sales 101 Cash 401.1 Sales Ret. & Allow. 122 Accts. Rec. Other Revenue 131 Merch. Inv. 411 Interest Revenue 141 Supplies 412 Rent Revenue 145 Prepaid Ins. 413 Subscrip. Revenue
Property, Plant, & Equip. 161 Land 171 Building 171.1 Acc. Depr.–Bldg. 181 Store Equipment 181.1 Acc. Depr.–Store Eq. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO
Assets Revenue Current Assets 401 Sales 101 Cash 401.1 Sales Ret. & Allow. 122 Accts. Rec. Other Revenue 131 Merch. Inv. 411 Interest Revenue 141 Supplies 412 Rent Revenue 145 Prepaid Ins. 413 Subscrip. Revenue
Property, Plant, & Equip. Expenses 161 Land Cost of Goods Sold 171 Building 501 Purchases 171.1 Acc. Depr.–Bldg. 501.1 Purch. Ret. & Allow. 181 Store Equipment 501.2 Purchases Discounts 181.1 Acc. Depr.–Store Eq. 502 Freight-In ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO
Liabilities Operating Expenses Current Liabilities 511 Wages Expense 201 Notes Payable 512 Advertising Expense 202 Accounts Payable 513 Bk. Credit Card Exp. 219 Wages Payable 521 Rent Expense 231 Sales Tax Payable 523 Supplies Expense 241 Unearned Sub. Rev. 525 Telephone Expense 533 Utilities Expense Long-Term Liabilities 535 Insurance Expense 251 Mortgage Payable 540 Depr. Exp.–Building 541 Depr. Exp.–Store Eq. Owner’s Equity 549 Misc. Expense 311 G. L. Fishel, Capital 312 G. L. Fishel, Drawing ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHART OF ACCOUNTS FOR NORTHERN MICRO
231 Sales Tax Payable 523 Supplies Expense 241 Unearned Sub. Rev. 525 Telephone Expense 533 Utilities Expense Long-Term Liabilities 535 Insurance Expense 251 Mortgage Payable 540 Depr. Exp.–Building 541 Depr. Exp.–Store Eq. Owner’s Equity 549 Misc. Expense 311 G. L. Fishel, Capital 312 G. L. Fishel, Drawing Other Expenses 313 Income Summary 551 Interest Expense
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3
Prepare a work sheet for a merchandising business. PREPARING A WORK SHEET: 5 STEPS
• Prepare the trial balance. • Prepare the adjustments. • Prepare the adjusted trial balance. • Extend the adjusted trial balance to the Income Statement and Balance Sheet columns. • Total the Income Statement and Balance Sheet columns to compute the net income or loss. Name of Company Work Sheet For Year Ended December 31, 20-- TRIAL BALANCE ACCOUNT TITLE DEBIT CREDIT
Let’s look at a work sheet for a merchandising business!
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT STEP #1 Prepare a Trial Balance ASSETS are listed Assets in the Debit column.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT STEP #1 Prepare a Trial Balance BEGINNING balance Assets of Merchandise Mdse. Inv. Inventory
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT STEP #1 Prepare a Trial Balance Assets LIABILITIES (including Mdse. Inv. Liabilities unearned revenues) are Unearned Rev. listed in the Credit column.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT STEP #1 Prepare a Trial Balance Assets Mdse. Inv. Liabilities Unearned Rev.
OWNER’S EQUITY Capital accounts are shown next. Drawing
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT Drawing
Income Summary
Income Summary is listed, but it has no balance until the adjustments are entered.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT Drawing
Income Summary
Revenue CONTRA-REVENUE Sales accounts are listed in Sales R & A Sales Discounts the Debit column.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT Drawing
Income Summary
Revenue Sales Sales R & A Sales Discounts
Expenses Purchases COST OF GOODS SOLD Purch. R & A accounts are listed next. Purch. Disc. Freight-In
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS DEBIT CREDIT DEBIT CREDIT STEP #1 STEP #2 Prepare a Prepare the Trial Balance Adjustments Assets Mdse. Inv. EI BI Liabilities Unearned Rev. The beginning inventory is removed from and the ending inventory is entered into the merchandiseCapital inventory account. Drawing
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Drawing
Income Summary BI EI
Revenue Sales Income SummarySales R&A is debited for the amount Sales Discounts of the beginning inventory and credited for the amount of the ending inventory. Expenses Purchases Purch. R & A Purch. Disc. Freight-In
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE ADJUSTMENTS ADJ. TRIAL BAL. DEBIT CREDIT DEBIT CREDIT STEP #2 STEP #3 Prepare the Prepare the Adjustments Adj. Trial Bal. Assets Merchandise Inv. EI BI EI
The ending inventory is now the balance of the merchandise inventory account and is extended to the Adjusted Trial Balance columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE ADJUSTMENTS ADJ. TRIAL BAL. DEBIT CREDIT DEBIT CREDIT STEP #2 STEP #3 Prepare the Prepare the Adjustments Adj. Trial Bal. Assets Merchandise Inv. EI BI EI Liabilities Unearned Rev. Liabilities are extended to the Adjusted Trial Balance columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20--
ACCOUNT TITLE ADJUSTMENTS ADJ. TRIAL BAL. DEBIT CREDIT DEBIT CREDIT STEP #2 STEP #3 Prepare the Prepare the Adjustments Adj. Trial Bal. Assets Merchandise Inv. EI BI EI Liabilities Owner’s equity accounts are Unearned Rev. also extended to the Adjusted Trial Balance Capital columns. Drawing
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJUSTMENTS ADJ. TRIAL BAL. ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Income Summary BI EI BI EI
For the Income Summary account, BOTH the beginning and the ending inventories are extended into the Adjusted Trial Balance columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJUSTMENTS ADJ. TRIAL BAL. ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT
Income Summary BI EI BI EI
Revenue Sales Sales R & A All the revenue and expense Sales Discounts accounts are extended to the Adjusted Trial Balance Expenses columns. Purchases Purch. R & A Purch. Disc. Freight-In
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20-- ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT STEP #3 STEP #4 Prepare the Extend Adjusted Adj. Trial Bal. Account Balances Assets Assets EI EI Liabilities Unearned Rev. The assets (including the ending Capital balance of Merchandise Drawing Inventory) are extended to the Balance Sheet columns.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Name of Company Work Sheet For Year Ended December 31, 20-- ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT STEP #3 STEP #4 Prepare the Extend Adjusted Adj. Trial Bal. Account Balances Assets Assets EI EI LiabilitiesLiabilities and Liabilities Unearned Rev.owner’s equity Unearned Rev. accounts are also extended to the CapitalBalance Sheet columns. Capital Drawing Drawing
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
BI EI BI EI
Revenue SalesBOTH the beginning and the ending Sales R & A inventories are extended to the Sales DiscountsIncome Statement columns for the INCOME SUMMARY account. Expenses Purchases Purch. R & A Purch. Disc Freight-In
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT Revenue and expenses are extended BI to theEI Income BIStatement columns.EI
Revenue Revenue Sales Sales Sales R & A Sales R & A Sales Discounts Sales Discounts
Expenses Expenses Purchases Purchases Purch. R & A Purch. R & A Purch. Disc Purch. Disc Freight-In Freight-In
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT Sales Discounts Sales Discounts
Expenses Expenses Purchases Purchases Purch. R & A Purch. R & A Purch. Disc. Purch. Disc. Freight-In Freight-In STEP #5 COMPLETE THE WORK SHEET (1) Sum columns (2) Compute net income (loss) Net Net Income Income
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT Sales Discounts Sales Discounts
Expenses Expenses Purchases Purchases Purch. R & A Purch. R & A Purch. Disc. Purch. Disc. Freight-In Freight-In STEP #5 COMPLETE THE WORK SHEET (1) Sum columns (2) Compute net income (loss) Net Net Net Net Income Loss Loss Income
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Journalize adjusting entries for a merchandising business. ADJUSTING ENTRIES FOR NORTHERN MICRO
DATE DESCRIPTION PR DEBIT CREDIT 1 Adjusting Entries 20-- 2 Dec. 31 Income Summary 25,000 3 Merchandise Inventory 25,000 4 5 31 Merchandise Inventory 30,000 6 IncomeJournal Summary entries must 30,000 7 be made to enter the adjustments 8 31 Suppliesinto the Expense accounting system. 1,400 9 Supplies 1,400 10
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJUSTING ENTRIES FOR NORTHERN MICRO
DATE DESCRIPTION PR DEBIT CREDIT 1 Adjusting Entries 20-- 2 Dec. 31 Insurance Expense 1,800 3 Prepaid Insurance 1,800 4 5 31 Depr. Exp.–Bldg. 4,000 6 Accum. Depr.–Bldg. 4,000 7 8 31 Depr. Exp.–Store Equip. 3,000 9 Accum. Depr.–Store Equip. 3,000 10
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJUSTING ENTRIES FOR NORTHERN MICRO
DATE DESCRIPTION PR DEBIT CREDIT 1 Adjusting Entries 20-- 2 Dec. 31 Wages Expense 450 3 Wages Payable 450 4 5 31 Unearned Ticket Revenue 30,000 6 Ticket Revenue 30,000 7 8 9 10
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Prepare adjusting journal entries under the perpetual inventory system. ADJUSTING ENTRIES FOR A PERPETUAL INVENTORY SYSTEM
DATE DESCRIPTION PR DEBIT CREDIT 1 Merchandise Inventory 800 2 Accounts Payable 800 3 Purchased merchandise on account 4 Under the PERPETUAL inventory 5 Accountssystem, Receivable Merchandise Inventory 400 6 Salesand Cost of Goods Sold are 400 7 Sold continuallymerchandise on account updated as merchandise is purchased and sold. 8 9 Cost of Goods Sold 300 10 Merchandise Inventory 300 Cost of goods sold recognized 11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJUSTING ENTRIES FOR A PERPETUAL INVENTORY SYSTEM
• After the physical inventory is completed: – The perpetual records must be compared with the physical inventory to discover and correct any errors or losses of merchandise from theft, breakage, or spoilage – If a difference is found, the records must be corrected by an adjusting entry – Differences are recorded in an account called Inventory Short and Over ADJUSTING ENTRIES FOR A PERPETUAL INVENTORY SYSTEM
EXAMPLE: A physical inventory shows $3,710 worth of merchandise, but the inventory account has a balance of $3,840.
$130 short ADJUSTING ENTRIES FOR A PERPETUAL INVENTORY SYSTEM
DATE DESCRIPTION PR DEBIT CREDIT 1 Dec. 31 Inventory Short and Over 130 2 Merchandise Inventory 130 3 To adjust inventory per 4 physical count 5 6 7 8 9 Merchandise Inventory is reduced by $130. 10
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ADJUSTING ENTRIES FOR A PERPETUAL INVENTORY SYSTEM
DATE DESCRIPTION PR DEBIT CREDIT 1 Dec. 31 Merchandise Inventory 60 2 Inventory Short and Over 60 3 To adjust inventory per 4 physical count 5 6 7 8 If a physical count had 9 shown $3,900,… a $60 overage. 10
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