Merchandising Operations and the Accounting Cycle - Pearson

Journal
Adjusting Entries
a. Dec. 31 Interest receivable ................................................ 400
Interest revenue .............................................. 400
b. Dec. 31 Cost of goods sold................................................ 300
Inventory.......................................................... 300
c. Dec. 31 Supplies expense ($650 – $100) .......................... 550
Supplies............................................................ 550
d. Dec. 31 Insurance expense................................................ 1,000
Prepaid insurance ........................................... 1,000
e. Dec. 31 Amortization expense—furniture ..................... 600
Accumulated amortization—furniture........ 600
f. Dec. 31 Unearned sales revenue ...................................... 1,300
Sales revenue................................................... 1,300
g. Dec. 31 Wages expense...................................................... 400
Wages payable................................................. 400
h. Dec. 31 Interest expense.................................................... 200
Interest payable............................................... 200
Closing Entries
Dec. 31 Sales revenue .................................................... 169,300
Interest revenue ................................................ 1,000
Income summary ........................................ 170,300
Dec. 31 Income summary.............................................. 116,450
Cost of goods sold....................................... 90,800
Sales discounts............................................. 1,400
Sales returns and allowances..................... 2,000
Wages expense............................................. 10,200
Rent expense ................................................ 8,400
Amortization expense—furniture ............ 600
Insurance expense....................................... 1,000
Supplies expense ......................................... 550
Interest expense........................................... 1,500
Dec. 31 Income summary ($170,300 – $116,450) ........ 53,850
Retained earnings........................................ 53,850
Dec. 31 Retained earnings............................................. 54,100
Dividends..................................................... 54,100
Learning Tip Here is an easy way to remember the closing process. First, look
at the work sheet. Then:
1. Debit all income statement accounts with a credit balance. Credit Income
Summary for the total of all these debits.
2. Credit all income statement accounts with a debit balance. Debit Income
Summary for the total of all these credits.
3. Take the balance in the Income Summary account. If the account has a debit
balance, there is a net loss; credit Income Summary for that amount, and debit
Retained Earnings. If Income Summary has a credit balance, there is a net income;
debit Income Summary for that amount, and credit Retained Earnings.
4. Look at the debit balance of Dividends in the balance sheet column. Credit
Dividends for its balance, and debit Retained Earnings for the same amount.
Income Statement Formats:
Multi-Step and Single-Step
We have seen that the balance sheet appears in two formats: the report format (assets
on top, shareholders’ equity at the bottom) and the account format (assets at left,
EXHIBIT 5-8
Adjusting and Closing Entries
for a Merchandiser
For a review of balance sheet
formats see Chapter 4, page 177.
Chapter Five Merchandising Operations and the Accounting Cycle 243