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McGraw-Hill Ryerson PowerPoint PPT Presentation

College Accounting First Canadian Edition Price • Haddock • Brock • Hahn • Reed McGraw-Hill Ryerson 1 CHAPTER 10 COMPLETING THE ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS 2 OBJECTIVE 1 Prepare a classified income statement from the worksheet. 3

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College

Accounting

First Canadian Edition

Price • Haddock • Brock • Hahn • Reed

McGraw-Hill Ryerson

1


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CHAPTER 10

COMPLETING THE

ACCOUNTING CYCLE FOR A

MERCHANDISING BUSINESS

2


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OBJECTIVE 1

Prepare a classified

income statement

from the worksheet.

3


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FINANCIAL STATEMENTHEADINGS

Headings answer the following questions:

Who?

Name of the company

What?

Name of the financial statement

When?

Period of time covered by the statement or date of the statement

4


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FASHION WORLD

Income Statement (Partial)

Year Ended December 31, 20X4

Operating Revenue

Sales 409,650.00

Less Sales Returns and Allowances 13,000.00

Net Sales 396,650.00

Cost of Goods Sold

Delivered Cost of Goods Sold 253,800.00

Less Purchase Returns and Allowances 2,790.99

Cost of Goods Sold 251,009.01

Gross Profit on Sales 145,640.99

Operating Expenses

Selling Expenses

Sales Salaries Expense 56,490.00

Wages Expense 14,700.00

Advertising Expense7,425.00

Supplies Expense4,240.00

Cash Short or Over 125.00

Amortization Expense: Store Equipment2,100.00

Total Selling Expenses 8,508.00

Subtract Sales Returns and Allowances from Sales to determine Net Sales.

5


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FASHION WORLD

Income Statement (Continued)

Year Ended December 31, 20X4

Gross Profit on Sales 145,640.99

Operating Expenses

Selling Expenses

Sales Salaries Expense 56,490.00

Wages Expense 14,700.00

Advertising Expense 7,425.00

Supplies Expense 4,240.00

Cash Short or Over 125.00

Amortization Expense: Store Equipment 2,100.00

Total Selling Expenses 85,080.00

General and Administrative Expenses

Rent Expense 13,500.00

Insurance Expense 1,800.00

Utilities Expense 2,915.00

Office Salaries Expense 16,500.00

Payroll Taxes Expense 6,331.76

Telephone Expense 2,720.00

Uncollectible Accounts Expense 630.00

Merchandise Inventory Loss 500.00

Amortization Expense: Office Equipment 600.00

Total General and Administrative Expenses 45,497.75

The Total Operating Expenses are subtracted from the Gross Profit on Sales to determine the Net Income from Operations

6

Total Operating Expenses 130,577.75

(Subtract) -

Net Income from Operations 14,898.44


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FASHION WORLD

Income Statement (Partial)

Year Ended December 31, 20X4

Beginning Cost of Goods Sold 253,800.00

Less Purchase Returns and Allowances 2,790.99

Ending Cost of Goods Sold 251,009.01

Gross Profit on Sales 145,640.99

Operating Expenses

Selling Expenses

Sales Salaries Expense 56,490.00

Wages Expense 14,700.00

Advertising Expense7,425.00

Supplies Expense4,240.00

Cash Short or Over 125.00

Amortization Expense: Store Equipment2,100.00

Total Selling Expenses 8,508.00

7

7

Financial Statement forms do not have Debit and Credit Columns. They have “Totals Columns and “Totaling Columns”. Total columns are the ones to the right and any calculations (addition and/or subtraction) of figures used to arrive at totals are completed to the left.


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FASHION WORLD

Income Statement (Partial)

Year Ended December 31, 20X4

Operating Revenue

Sales 409,650.00

Less Sales Returns and Allowances 13,000.00

Net Sales 396,650.00

Cost of Goods Sold

Delivered Cost of Goods Sold 253,800.00

Less Purchase Returns and Allowances 2,790.99

Ending Cost of Goods Sold 251,009.01

Gross Profit on Sales 145,640.99

Operating Expenses

Selling Expenses

Sales Salaries Expense 56,490.00

Wages Expense 14,700.00

Advertising Expense7,425.00

Supplies Expense4,240.00

Cash Short or Over 125.00

Amortization Expense: Store Equipment2,100.00

Total Selling Expenses 8,508.00

(Subtract) -

The Cost of Goods Sold is subtracted from net sales to determine Gross Profit on Sales.

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FASHION WORLD

Income Statement (Continued)

Year Ended December 31, 20X4

Other Income

Miscellaneous Income 68.00

Other Expenses

Interest Expense 434.95

Net Other Expense366.95

Net Income 14,696.29

Net Income from Operations 14,898.44

(Subtract) -

  • Other Income Accounts are added.

  • Interest Expense is subtracted from Total Other Income.

  • The Net Nonoperating Expense is subtracted from the Net Income from Operations to determine the Net Income for Year.

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OBJECTIVE 2

Prepare a statement

of owner’s equity

from the worksheet.

10


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FASHION WORLD

Statement of Owner’s Equity

Year Ended December 31, 20X4

Carolyn Wells, Capital, January 1, 20X4 71,632.76

Net Income for Year 14,696.29

Less Withdrawals for the Year 30,000.00

Decrease in Capital 15,303.71

Carolyn Wells, Capital, December 31, 20X4 56,329.05

The Statement of Owner’s Equity reports the changes that have occurred in the owner’s financial interest during the fiscal period. This statement is prepared before the Balance Sheet so that the amount of the ending capital is available for use in the Owner’s Equity section of the Balance Sheet.

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FASHION WORLD

Statement of Owner’s Equity

Year Ended December 31, 20X4

Carolyn Wells, Capital, January 1, 20X4 71,632.76

Investments 2,000.00

Net Income for Year 14,696.29 16,696.29

Subtotal 88,329.05

Less Withdrawals for the Year 30,000.00

Carolyn Wells, Capital, December 31, 20X4 58,329.05

This is an example of a Statement of Owner’s Equity when additional investment has been made by the owner during the period.

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FASHION WORLD

Statement of Owner’s Equity

Year Ended December 31, 20X4

Carolyn Wells, Capital, January 1, 20X4

Net Income for Year 14,696.29

Less Withdrawals for the Year30,000.00

Decrease in Capital 15303.71

Carolyn Wells, Capital, December 31, 20X4 56,329.05

FASHION WORLD

Statement of Owner’s Equity

Year Ended December 31, 20X4

Carolyn Wells, Capital, January 1, 20X4

Net Income for Year 14,696.29

Less Withdrawals for the Year10,000.00

Increase in Capital 4,696.29

Carolyn Wells, Capital, December 31, 20X4 76,329.05

71,632.76

Fashion World had a decrease in capital since the withdrawals were more than the income for the period.

71,632.76

13

This shows Fashion World with an increase in capital.


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FASHION WORLD

Statement of Owner’s Equity

Year Ended December 31, 20X4

Carolyn Wells, Capital, January 1, 20X4

Net Loss for Year 16,796.00

Less Withdrawals for the Year 24,000.00

Decrease in Capital 40,796.00

Carolyn Wells, Capital, December 31, 20X4 30,836.76

71,632.76

This Statement of Owner’s Equity shows Fashion World with a Net Loss for Year.

14


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OBJECTIVE 3

Prepare a classified

balance sheet

from the worksheet.

15


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FASHION WORLD

Balance Sheet (partial)

December 31, 20X4

Assets

Current Assets

Cash 7,200.00

Petty Cash 100.00

Accounts Receivable 23,568.00

Less Allow. for Doubtful Accounts 730.00 22,838.00

Merchandise Inventory 31,500.00

Prepaid Expenses

Supplies 1,660.00

Prepaid Insurance3,000.00 4,660.00

Total Current Assets 66,298.00

Capital Assets

Plant and Equipment

Store Equipment 12,000.00

Less Accumulated Amortization 2,100.00 9,900.00

Office Equipment 3,500.00

Less Accumulated Amortization 600.00 2,900.00

Total Plant and Equipment 12,800.00

Total Assets 79,098.00

CURRENT

ASSETS

16


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FASHION WORLD

Balance Sheet (partial)

December 31, 20X4

Assets

Current Assets

Cash 7,200.00

Petty Cash 100.00

Accounts Receivable 23,568.00

Less Allow. for Doubtful Accounts 730.00 22,838.00

Merchandise Inventory 31,500.00

Prepaid Expenses

Supplies 1,660.00

Prepaid Insurance3,000.00 4,660.00

Total Current Assets 66,298.00

Capital Assets

Plant and Equipment

Store Equipment 12,000.00

Less Accumulated Amortization 2,100.00 9,900.00

Office Equipment 3,500.00

Less Accumulated Amortization 600.00 2,900.00

Total Plant and Equipment 12,800.00

Total Assets 79,098.00

PLANT

AND

EQUIPMENT

17


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FASHION WORLD

Balance Sheet (partial)

December 31, 20X4

Assets

Current Assets

Cash 7,200.00

Petty Cash 100.00

Accounts Receivable 23,568.00

Less Allow. for Doubtful Accounts 730.00 22,838.00

Merchandise Inventory 31,500.00

Prepaid Expenses

Supplies 1,660.00

Prepaid Insurance3,000.00 4,660.00

Total Current Assets 66,298.00

Capital Assets

Plant and Equipment

Store Equipment 12,000.00

Less Accumulated Amortization 2,100.00 9,900.00

Office Equipment 3,500.00

Less Accumulated Amortization 600.00 2,900.00

Total Plant and Equipment 12,800.00

Total Assets 79,098.00

The Total Plant and Equipment is added to the Total Current Assets. The sum is the Total Assets.

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FASHION WORLD

Balance Sheet (Continued)

December 31, 20X4

Liabilities and Owner’s Equity

Current Liabilities

Notes Payable: Trade 3,000.00

Notes Payable: Bank 9,000.00

Accounts Payable 3,138.00

Interest Payable 434.95

CPP Contributions Payable 610.00

EI Premiums Payable 225.00

Wages Payable 2,700.00

GST Payable 2,390.00

Less Prepaid GST 1,460.00930.00

Provincial Sales Tax Payable 2,731.00

Total Current Liabilities 22,768.95

Owner’s Equity

Carolyn Wells, Capital 56,329.05

Total Liabilities and Owner’s Equity 79,098.00

CURRENT

LIABILITIES

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FASHION WORLD

Balance Sheet (Continued)

December 31, 20X4

Liabilities and Owner’s Equity

Current Liabilities

Notes Payable: Trade 3,000.00

Notes Payable: Bank 9,000.00

Accounts Payable 3,138.00

Interest Payable 434.95

CPP Contributions Payable 610.00

EI Premiums Payable 225.00

Wages Payable 2,700.00

GST Payable 2,390.00

Less Prepaid GST 1,460.00930.00

Provincial Sales Tax Payable 2,731.00

Total Current Liabilities 22,768.95

Owner’s Equity

Carolyn Wells, Capital 56,329.05

Total Liabilities and Owner’s Equity 79,098.00

OWNER’S

EQUITY

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FASHION WORLD

Balance Sheet (Continued)

December 31, 20X4

Liabilities and Owner’s Equity

Current Liabilities

Notes Payable: Trade 3,000.00

Notes Payable: Bank 9,000.00

Accounts Payable 3,138.00

Interest Payable 434.95

CPP Contributions Payable 610.00

EI Premiums Payable 225.00

Wages Payable 2,700.00

GST Payable 2,390.00

Less Prepaid GST 1,460.00930.00

Provincial Sales Tax Payable 2,731.00

Total Current Liabilities 22,768.95

Owner’s Equity

Carolyn Wells, Capital 56,329.05

Total Liabilities and Owner’s Equity 79,098.00

  • Total Current Liabilities and Carolyn Wells, Capital are added. The sum is the Total Liability and Owner’s Equity.

  • This total should be equal to Total Assets.

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OBJECTIVE 4

Journalize and post

the adjusting entries.

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GENERAL JOURNAL Page 25

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

Adjusting Entries

20X4

Dec. 31 Merchandise Inventory 5050 500.00

Merchandise Inventory 1021 500.00

To reduce the inventory carrying to the

actual physical inventory count

31 Uncollectible Accounts Expense 5056 630.00

Allowance for Doubtful Accounts 1012 630.00

To record estimated loss from uncollectible

accounts based on 0.3% of net credit sales

of $210,000

Adjustment a

Adjustment b

From the worksheet, journalize the adjusting entries in the general journal. Above are Adjustments a & b.

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FASHION WORLD

Worksheet (Partial)

For the Year Ended December 31, 20X4

TRIAL BALANCE ADJUSTMENTS

ACCOUNT NAME DEBIT CREDIT DEBIT CREDIT

Cash 7,200.00

Petty Cash 100.00

Accounts Receivable 23,500.00 (i) 68.00

Allowance for Doubtful Accounts 100.00 (b) 630.00

Merchandise Inventory 33,009.01 (a) 500.00

Prepaid Insurance 4,800.00 (h) 1,800.00

Supplies 5,900.00 (g) 4,240.00

Store Equipment 12,000.00

Accumulated Amortization: Store Equipment (c) 2,100.00

Office Equipment 3,500.00

Accumulated Amortization: Office Equipment (d) 600.00

Notes Payable: Trade 3,000.00

Notes Payable: Bank 9,000.00

Accounts Payable 3,138.00

Interest Payable 359.01 (f) 75.94

CPP Contributions Payable 610.00

EI Premiums Payable 225.00

Wages Payable (e) 2,700.00

Prepaid GST 1,460.00

GST Payable 2,390.00

Provincial Sales Tax Payable 2,731.00

Carolyn Wells, Capital 71,632.76

Carolyn Wells, Drawing 30,000.00

Sales 409,650.00

Sales Returns and Allowances 13,000.00

Miscellaneous Income (i) 68.00

Cost of Goods Sold 250,000.00

Merchandise Inventory Loss (a) 500.00

Sales Salaries Expense 56,490.00

Wages Expense 12,000.00 (e) 2,700.00

Advertising Expense 7,425.00

Supplies Expense (g) 4,240.00

Cash Short or Over 125.00

An End-of-Period

Worksheet

The adjusting entries are taken from the adjustment columns of the worksheet. Lowercase letters are used to identify the Debit & Credit part of each entry. For example, “a” debit and credit.

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GENERAL JOURNAL Page 25

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

Adjusting Entries

20X4 (Adjustment f)

Dec. 31 Wages Expense 5013 2,700.00

Salaries Payable 2,700.00

To record accrued salaries of part-time

salesclerks for Dec. 28-31

5

1

2

3

ACCOUNT Wages ExpenseACCOUNT NO. 5013

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X4

Dec. 31 Balance  12,000.00

31 Adjusting J25 2,700.00 14,700.00

4

Steps in Posting from Journal to Ledger

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After all adjusting entries have been posted, the balances of the general ledger accounts should match the amounts shown in the Adjusted Trial Balance section of the worksheet.

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OBJECTIVE 5

Journalize and post

the closing entries.

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CLOSING ENTRIES

  • The figures that are used to close the temporary accounts are found in the Income Statement section of the worksheet.

  • The temporary accounts are: the revenue, cost, and expense accounts.

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FASHION WORLD

Worksheet (Partial)

Year Ended December 31, 20X4

ACCOUNT NAME ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET

DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

Sales 409,650.00 409,650.00

Miscellaneous Income 68.00 68.00

CLOSING REVENUE ACCOUNTS

In order to close these accounts, make an entry opposite its balance

(example, credits become debits).

GENERAL JOURNAL Page 28

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

Dec. 31 Sales 4001 409,650.00

Miscellaneous Income 4093 68.00

Income Summary 409,582.99

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CLOSING THE DRAWING ACCOUNT

TO OWNER’S EQUITY

Reduce Capital With A Debit Entry

Close Drawing With A Credit Entry

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After the four closing

entries have been posted,

only the Balance Sheet

accounts have balances.

All other accounts

have been closed.

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OBJECTIVE 6

Prepare a postclosing

trial balance.

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OBJECTIVE 7

List the steps in the

Accounting cycle.

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ACCOUNTS RECEIVABLE AREA

Financial

Statements

Source

documents

GENERAL LEDGER AND FINANCIAL REPORTING AREA

Sales

Journal

Accounts

Receivable

Ledger

Cash

Receipts

Journal

General

Journal

General

Ledger

Worksheet

ACCOUNTS PAYABLE AREA

Purchases

Journal

Accounts

Payable

Ledger

Cash

Payments

Journal

34


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