Merchandising Operations and the Accounting Cycle - Pearson

Journal
Adjusting Entries
a. Dec. 31 Interest receivable ................................................ 400
Interest revenue .............................................. 400
b. Dec. 31 Supplies expense ($650 – $100) .......................... 550
Supplies............................................................ 550
c. Dec. 31 Insurance expense................................................ 1,000
Prepaid insurance ........................................... 1,000
d. Dec. 31 Amortization expense—furniture ..................... 600
Accumulated amortization—furniture........ 600
e. Dec. 31 Unearned sales revenue ...................................... 1,300
Sales revenue................................................... 1,300
f. Dec. 31 Wages expense...................................................... 400
Wages payable................................................. 400
g. Dec. 31 Interest expense.................................................... 200
Interest payable............................................... 200
Closing Entries
1. Dec. 31 Sales revenue .................................................... 169,300
Interest revenue ................................................ 1,000
Income summary ........................................ 170,300
2. Dec. 31 Cost of goods sold ............................................ 135,200
Inventory (beginning balance) .................. 38,600
Purchases...................................................... 91,400
Freight in ...................................................... 5,200
3. Dec. 31 Inventory (ending balance)............................. 40,200
Purchase discounts........................................... 3,000
Purchase returns and allowances................... 1,200
Cost of goods sold....................................... 44,400
4. Dec. 31 Income summary.............................................. 116,450
Sales discounts.................................................. 1,400
Sales returns and allowances.......................... 2,000
Cost of goods sold ($135,200 – $44,400) ........ 90,800
Wages expense .................................................. 10,200
Rent expense ..................................................... 8,400
Amortization expense—furniture.................. 600
Insurance expense ............................................ 1,000
Supplies expense .............................................. 550
Interest expense ................................................ 1,500
5. Dec. 31 Income summary ($170,300 – $116,450) ........ 53,850
Retained earnings........................................ 53,850
6. Dec. 31 Retained earnings............................................. 54,100
Dividends..................................................... 54,100
Closing entry 4 then closes the Sales contra accounts and the temporary Cost of
Goods Sold account along with the other expense accounts into Income Summary.
Closing entries 5 and 6 complete the closing process. All data for the closing entries
are taken from the income statement columns of the work sheet. (Note that
some companies close the accounts in closing entries 2 and 3 into the Income
Summary account, instead of the temporary Cost of Goods Sold account. This has
the same result overall. However, as mentioned above, Inventory and Cost of Goods
Sold have their correct account balances before being closed to the Income summary
account if they are closed to the temporary Cost of Goods Sold account first.)
Study Exhibits 5S-5, 5S-6, and 5S-7 carefully because they illustrate the entire
end-of-period process that leads to the financial statements. As you progress through
this book, you may want to refer to these exhibits to refresh your understanding
of the adjusting and closing process for a merchandising business.
EXHIBIT 5S-7
Adjusting and Closing Entries
Chapter Five Merchandising Operations and the Accounting Cycle 287