1. 10.3 Work Sheet for a Merchandising Business

2. As you already know, the figures for the financial statements are obtained from a completed work sheet. Therefore, you must learn to handle three new merchandising accounts on the work sheet. Merchandise Inventory Purchases Freight-in 72 074 210 853 5 731 The value (at cost) of the merchandise on hand at the beginning of the fiscal period The total cost of all merchandise inventory purchased during the fiscal period The total transportation costs of bringing the goods into the business

3. You will see these new accounts on the partial work sheet in Figure 10.4 below. Notice the three-step procedure used by the accountant who prepared the work sheet. First, the beginning inventory was extended to the debit column of the income statement.

4. In the second step, ending inventory-- obtained by a physical count-- was entered in both the credit column of the income statement and in the debit column of the balance sheet. And third, the amounts for Freight-in and Purchases were transferred to the debit column of the income statement.

5. The third step shown below is not out of the ordinary. But consider how Merchandise Inventory was treated in the first and second steps. Why did the accountant transfer an asset to the income statement? And why is the year-end count of inventory entered in both the income statement and balance sheet section of the work sheet?

6. Step 3: Ending inventory obtained by a physical inventory is entered in two columns: the Income Statement credit column and the Balance Sheet debit column Step 2: Both Purchases and freight-in are extended to the Income Statement debit column Step 1: Beginning inventory is extended to the Income Statement debit column

7. BEGINNING

8. Work Sheet Trillum Trading Co. Year Ended December 31, 20- AccountsTrial BalanceAdjustmentsIncome StatementBalance Sheet DRCRDRCRDRCRDRCR Bank 4,072.00 Accounts Receivable 25,690.00 Merchandise Inventory 72,074.00 83,562.00 Supplies 2,840.00 2,560.00 280.00 Prepaid Insurance 4,242.00 2,915.00 1,327.00 Equipment 24,316.00 Accum. Depre.- Equipment 8,754.00 3,112.00 11,866.00 Automobile 37,416.00 Accum Depre. - Automobiles 19,082.00 5,500.00 24,582.00 Accounts Payable 12,780.00 565.00 13,345.00 HST Payable 4,700.00 HST Recoverable 1,650.00 Bank Loan 10,000.00 R, Kehow, Capital 97,228.00 R. Kehow, Drawings 40,000.00 Sales 377,508.00 Advertising Expense 1,141.00 Bank Charges Expense 2,651.00 Car Expense 4,749.00 250.00 4,999.00 Delivery Expense 1,377.00 Freight-in 5,731.00 Miscellanous Expense 1,507.00 315.00 1,822.00 Purchases 210,853.00 Rent Expense 12,000.00 Salaries Expense 24,000.00 Telephone Expense 1,850.00 Utilities Expense 3,673.00 Wages Expense 48,220.00 530,052.00 Supplies Expense 2,560.00 Insurance Expense 2,915.00 Dep. Expense - Automobile 5,500.00 Dep. Expense- Equipment 3,112.00 14,652.00 404,478.00 461,070.00 218,313.00 161,721.00 Net Income 56,592.00 461,070.00 218,313.00 Comes from the Income Statement

9. Closing Entries

10. Closing Merchandising Inventory in the ledger Merchandising Inventory 72,074.00 83,562.00 OB 1 2 83,562.00 Balance Sheet Post-closing Trial Balance (Merchandising Inventory) Ending Inventory

11. Bok Trading p. 414 (t), p. 332-335 (w) a)Worksheet p. 332 – Add or subtract adjustments – Put in appropriate financial statements b)Income Statement p. 333 – Include: Revenue, Cost of Goods Sold, Expenses – Revenue – COGS = Gross Profit – Gross Profit – Expenses = Net Income c) Balance Sheet p. 334 – Merchandise Inventory  Current Asset d) Closing entries p. 335 – Refer to yesterdays Closing Journal Note