Chapter 15Chapter 15

Worksheet for a Merchandising Business

OBJECTIVES: OBJECTIVES:

Define accounting terms related to a work sheet for a merchandising business.

Identify accounting concepts and practices related to a work sheet for a merchandising business.

Begin a worksheet for a merchandising business.

Plan adjustments on a work sheet for a merchandising business.

Complete a work sheet for a merchandising business.

How Financial Information is UsedHow Financial Information is Used

Management uses it to make decisions on future business operations.

Needed to prepare tax reports. Used to obtain additional assets for the

business. Shows profit/loss. Can be summarized at any time, but MUST BE

done at the end of each fiscal period Omni: begins Jan 1 ends Dec. 31

Ch 15-1:Ch 15-1:

Beginning an 8-Column Work Sheet for a Merchandising Business

The Worksheet:The Worksheet:

Summarizes financial information for a fiscal period– Accounting Period Cycle

Checks the equality of the general ledger- DR=CR Used in planning adjustments Determines Net Income or Loss Sorts accounts for preparation of financial statements

Step 1 - TRIAL BALANCE: All accounts from general ledger are listed in the order

they are in the ledger. Some accounts will not have a balance (still list them)

33. Total, prove, and rule

the debit and credit columns.

1. Write the titles of the general ledger accounts.

2. Write the balance of each account.

1

1 2

2

TRANSFERRING GENERAL TRANSFERRING GENERAL LEDGER ACCOUNT BALANCES LEDGER ACCOUNT BALANCES TO A WORK SHEETTO A WORK SHEET

RECORDING A TRIAL RECORDING A TRIAL BALANCE ON A WORK SHEETBALANCE ON A WORK SHEET

Purpose of AdjustmentsPurpose of Adjustments Bring all accounts up to date

– Supplies – store– Supplies – office– Pre-paid Insurance– Merchandise Inventory

Why plan adjustments????– The correct income or loss can be determined– The business pays the correct amount in taxes– MATCHING REVENUE WITH EXPENSES

Merchandise InventoryMerchandise Inventory

Merchandise Inventory The amount of goods on hand for sale to customers.

New Asset Account – Normal DR balance No entries are recorded in this account during the fiscal

period. Purchases is used to record merchandise bought and

Sales is used to record merchandise sold. Must adjust Merchandise Inventory to reflect purchases

and sales throughout fiscal period

2 ways TO DETERMINE INVENTORY: 1. Book inventory - determined by general ledger

accounts.2. Physical inventory - actually count the merchandise.

Merchandise Inventory AdjustmentMerchandise Inventory Adjustment

Two accounts used for the adjustment:– Merchandise Inventory– Income Summary

Whether you debit or credit Merchandise Inventory depends on business conditions.– DR – merchandise on hand is GREATER at end of

fiscal period (than the beginning)– CR – merchandise on hand is LESS at the end of

the fiscal period

PLANNING ADJUSTMENTS ON A WORK SHEETPLANNING ADJUSTMENTS ON A WORK SHEET

Jan. 1 Bal. 270,480.00

Merchandise Inventory

Debit Credit

Merchandise Inventory

Dec. 31 Balance - $254,640.00

BEFORE ADJUSTMENTAFTER ADJUSTMENT

Income Summary

Jan 1 Bal. 270,480.00Jan 1 Bal. 270,480.00(Dec. 31 Bal. 254,640.00)

ANALYZING A MERCHANDISE INVENTORY ANALYZING A MERCHANDISE INVENTORY ADJUSTMENTADJUSTMENT

What is the balance? What should the balance be? What must be done to correct the account balance? What adjustment is made?

Adj. (a) 15,840.00

Merchandise Inventory

Adj. (a) 15,840.00

RECORDING A MERCHANDISE INVENTORY RECORDING A MERCHANDISE INVENTORY ADJUSTMENTADJUSTMENT

1

2

3. Label the two parts of this adjustment.

1. Write the debit amount.

2. Write the credit amount.

3

PLANNING ADJUSTMENTS ON A WORK SHEETPLANNING ADJUSTMENTS ON A WORK SHEET

Jan. 1 Bal. 294,700.00

Merchandise Inventory

Debit Credit

Merchandise Inventory

Dec. 31 Balance - $ 298,900.00

BEFORE ADJUSTMENT

ANALYZING AN ADJUSTMENT WHEN ENDING ANALYZING AN ADJUSTMENT WHEN ENDING MERCHANDISE INVENTORY IS GREATER THAN MERCHANDISE INVENTORY IS GREATER THAN BEGINNING MERCHANDISE INVENTORYBEGINNING MERCHANDISE INVENTORY

AFTER ADJUSTMENT

Income Summary

Jan 1 Bal. 294,700.00Adj. (a) 4,200.00

Merchandise Inventory

Adj. (a) 4,200.00

(Dec. 31 298,900.00)

Another example:Another example:

Jan. 1 Balance of Merchandise Inventory is $150,000.00

Dec. 31 Physical Inventory count is $180,000.00

What should your adjusting entry be?

Adjusting Entry

– Debit Merchandise Inventory $30,000.00– Credit Income Summary $30,000.00

Jan. 31 Balance of Merchandise Inventory is $250,000.00

Dec. 31 Physical Inventory count is $180,000.00

What is your adjusting entry?

TTERMS REVIEWERMS REVIEWinventory

merchandise inventory

TO DO:

Work Together, pg 379

On your own, pg 379

CHAPTER 15-2: Adjusting and Recording Work Sheet CHAPTER 15-2: Adjusting and Recording Work Sheet AdjustmentsAdjustments

Supplies NOT used during fiscal period Assets Supplies used Supplies Expenses MATCHING EXPENSES WITH REVENUE

Supplies Balance on Trial Balance is $580 Inventory of Supplies is $430 Adjusting Entry

– Debit Supplies Expense $150 – amount used– Credit Supplies $150 – decreases asset

BEFORE ADJUSTMENTAFTER ADJUSTMENT

Dec. 31 Bal. 6,480.001. Dec. 31 Bal.6,480.00

Supplies Expense—Office

2. (New Bal. 1,750.00)

ANALYZING A SUPPLIES ADJUSTMENTANALYZING A SUPPLIES ADJUSTMENT

4. Adj. (b) 4,730.00

Supplies—Office

4. Adj. (b) 4,730.00

1. What is the balance?2. What should the balance be?3. What must be done to correct the account balance?4. What adjustment is made?

RECORDING SUPPLIES ADJUSTMENTSRECORDING SUPPLIES ADJUSTMENTS

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3

3

2

3. Label the two parts of this adjustment.

***What is the new balance of both supplies accounts??

1. Write the debit amounts.

2. Write the credit amounts.

ANALYZING A PREPAID INSURANCE ADJUSTMENTANALYZING A PREPAID INSURANCE ADJUSTMENT

Value of pre-paid insurance NOT used – ASSET

Value of pre-paid insurance USED/expired – EXPENSE

Pre-paid Insurance account does not reflect the value of insurance used during the fiscal period

Must make adjustments

BEFORE ADJUSTMENTAFTER ADJUSTMENT

Dec 31 Bal. 5,800.001. Dec 31 Bal.5,800.00

Insurance Expense

2. (New Bal. 2,630.00)

ANALYZING A PREPAID INSURANCE ADJUSTMENTANALYZING A PREPAID INSURANCE ADJUSTMENT

4. Adj. (d) 3,170.00

Prepaid Insurance

4. Adj. (d) 3,170.00

1. What is the balance? (5,800)2. What should the balance be? (2,630)3. What must be done to correct the account balance?4. What adjustment is made?

RECORDING A PREPAID INSURANCE ADJUSTMENTRECORDING A PREPAID INSURANCE ADJUSTMENT

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32

3. Label the two parts of this adjustment.

**What is the new balance of the prepaid insurance account????

1. Write the debit amount.

2. Write the credit amount.

TO DO: TO DO:

Work Together, pg 385 On your own, pg 385 Application 15-1, 15-2

Chapter 15-3: Completing a Work SheetChapter 15-3: Completing a Work Sheet

Same as Encore Music EXCEPT: Income Summary increases/decreases amount

of goods from purchases/sales extend to Income Statement columns

4. Calculate net income or net loss.

5. Extend net income or net loss to Balance Sheet Debit or Credit column.

1. Extend balance sheet items to Balance Sheet columns.

2. Extend income statement items to Income Statement columns.

COMPLETING AN 8-COLUMN WORK SHEETCOMPLETING AN 8-COLUMN WORK SHEET

2 1

3. Total Income Statement and Balance Sheet columns.

6. Total Income Statement and Balance Sheet columns.

7. Check that totals are in balance.

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5

6 7

PAGE 388 – Completed Work SheetPAGE 388 – Completed Work Sheet

What does each amount on line 4 represent?

Line 5? Line 6? Line 7? Line 22, what is the other half of the

adjustment? Which accounts go to the Balance Sheet

columns? To the Income Statement columns?

How was line 36 calculated? Why is line 36 recorded in Balance Sheet

Credit column?

10-column worksheet10-column worksheet

Used by larger merchandising businesses with many accounts to be adjusted

Included additional pair of amount columns Adjusted Trial Balance

A 10-COLUMN WORK SHEET FOR A MERCHANDISING A 10-COLUMN WORK SHEET FOR A MERCHANDISING BUSINESS (LEFT PAGE)BUSINESS (LEFT PAGE)

1. Record the trial balance.

2. Plan the adjustments.1 2

A 10-COLUMN WORK SHEET FOR A MERCHANDISING A 10-COLUMN WORK SHEET FOR A MERCHANDISING BUSINESS (RIGHT PAGE)BUSINESS (RIGHT PAGE)

3. Extend the balances in the Trial Balance columns to the Adjusted Trial Balance columns.

4. Total, prove, and rule the Adjusted Trial Balance columns.

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4

5

6

5. Extend the amounts in the Adjusted Trial Balance columns to the appropriate Income Statement and Balance Sheet columns.

6. Total, prove, and rule the appropriate Income Statement and Balance Sheet columns.

TO DO: TO DO:

Work Together, pg 392 On your own, pg 392 Application Problem 15-3 Ch. 15 Quiz Mastery 15-4 Ch. 15 Study Guide TEST – TOMORROW!