Financial Reporting for a Departmentalized Business Chapter 4 Financial Reporting for a Departmentalized Business

Terms that you need to know Fiscal Period The length of time which a business summarizes and reports financial information. Departmental Statement of gross profit Provides a statement of revenue an cost information for each department. Interim departmental statement of gross profit. A statement that show revenue and cost information for a shorter term than a fiscal period.

Why do we use Departmental statements of gross profit We use it to determine ending merchandise inventory. Two types of computing inventory Periodic Physical inventory Perpetual Book inventory We use the gross profit method of estimating an inventory with this type of

Estimating Ending Merchandise inventory Calculating Net Purchases and Net Sales Purchases – Purchase Return and Allowances – Purchases Discount = Net Purch. Sales – Sales Return and Allowance – Sales Discount = Net Sales

Interim Departmental Statement of Gross Profit Mastersport Interim Departmental Statement of Gross Profit For Month Ended June 30, XXXX   Golf % of Net Sales Tennis Total Operating Revenue Net Sales 32883.65 100% 36546.3 69429.95 Cost of Merchandise Sold: Est. Mdse. Inv., June 1 149387.5 141799.6 291187.1 Net Purchases 8916.4 17073.5 25989.9 Mdse Available for Sale 158303.9 158873.1 317177 Less Est. End. Inv. June 30 140217.9 138772.7 278990.5 18086.01 55% 20100.46 38186.47 Gross Profit on Operations 14797.61 44% 16445.84 31243.48

4-2 Preparing a Worksheet for a Departmentalized Business Proving Accuracy between what our Accounts Payable/Receivable accounts in our general ledger say versus what our schedule of accounts payable/receivable say. Remember that it is a check to make sure that there is balance between these accounts and the records we keep.

Schedule of Accounts Receivable MasterSport Schedule of Accounts Receivable June 30, 200x Lawrence Bissell 950.6 Eastside Sports Center 644.7 Galaxy Tennis club 1785 Golden golf League 1592.5 Mary Lynch 245.7 Par Golf Club 1391.25 Total Accounts Receivable 6609.75 Accounts Receivable   Account No. 140 Date Item Post Ref Debit Credit Debit Balance 30-Jun S6 6609.75

For Year Ended December 31, 200x MasterSport Work Sheet For Year Ended December 31, 200x Account Title Trial Balance Adjustments Income Statement Balance Sheet Debit Credit   The worksheet has many functions first and foremost it is used to make sure that the general ledger is balanced from the trial balance columns on the worksheet Then we do our wonderful adjustments – remember that we do this to bring accounts up to date that may have changed throughout the year or month.

Just what you wanted some more adjustments Uncollectible Accounts expense Adjustment- sometimes items are sold on account to customers who later cannot be collected from customers are business expenses. From past experience that approximately 1% of the total sales on account will be uncollectible

Because people have not paid us it becomes an expense to us at the end of the year. We also have to add it to the amount in which we allow not to be collected for the year.

Review of adjustments and there corresponding accounts Allowance for uncollectible accounts Merchandise Inventory – golf, tennis Supplies – office, store Accumulated Depreciation – store, office equipment Uncollectible accounts expense Income summary –golf, tennis Supplies expense – office, store Depreciation expense – store, office equipment

The only adjustment that is a little different is Federal income tax expense We usually work from the top to the bottom of the worksheet, but this time we work from the bottom to the bottom. Federal Income Tax Expense Federal income tax payable Please look with me on page 104-105

Why the worksheet Check the balance of the general ledger Bring up to date accounts- using adjustments Determine what goes on what sheet- Income statement, balance sheet (does the income summary account remind you of anything? Determine net income.

For Year Ended December 31, 200x MasterSport Work Sheet For Year Ended December 31, 200x Account Title Trial Balance Adjustments Income Statement Balance Sheet Debit Credit    Totals 77398.25   833368.45 551424.60  495454.40 Net Income after Fed. Inc. Tax   55970.20 55970.20 833368.45 833368.45  551424.60 Net Income and making sure that both the debit and the credit are in balance from both columns

4-3 Financial Statements for a Departmentalized Business The 4 financial statements that you will prepare Departmental Statement of Gross Profit Income Statement Statement of Stockholders’ Equity Balance sheet

Departmental Statement of Gross Profit Used to help us determine the actual ending periodic inventories for each department

Departmental Statement of Gross Profit MasterSport Departmental Statement of Gross Profit For Year Ended December 31, 200x   Golf %of Net Sales Tennis Total Operating Revenue Net Sales $ 344,476.46 100% $430,154.70 $ 774,631.16 Cost of Merchandise Sold: Mdse. Inventory Jan 1 $ 18,434.61 $199,844.60 $ 218,279.21 Net Pruchases $203,404.25 $218,534.55 $ 421,938.80 Mdse Available for Sale $389,838.86 $418,379.15 $ 808,218.01 Less Ending Inv. Dec. 31 $204,855.00 $190,484.60 $ 395,339.60 Cost of Merchandise Sold $ 184,983.86 53.7% $227,894.55 53.0% $ 412,878.41 53.3% Gross Profit on Operations $ 159,492.60 46.3% $202,260.15 47.0% $ 361,752.75 46.7%

Income statement Please look on page 114 Remember that the bottom line needs to match the bottom line on the worksheet. You are also using the Statement of gross profit to fill in some of the blanks but also to help check your numbers. For example: net sales should equal what you have on your statement of gross profit.

Statement of Stockholders Equity 2 major sections Capital Stock Total shares of ownership in a corporations. Retained Earnings An amount earned by a corporation and not yet distributed to stockholders

This is the number that we use to carry over to the Balance Sheet MasterSport Statement of Stockholders Equity For Year Ended December 31, 200x Capital Stock:   $170.00 Per Share January 1, 20-- 2,000 shares Issued $340,000.00 Issued during Current Year, None $ - Balance December 31, 200x, 200 shares Issued Retained Earnings: Balance January 1, 200x $ 42,210.50 Net Income after Federal income tax for 200x $55,970.20 Less Dividends Declared during 200x $30,000.00 Net Increase during 200x $ 25,970.20 Balance, December 31, 200x $ 68,480.70 Total Stockholders Equity December 31, 200x $408,180.70 This is the number that we use to carry over to the Balance Sheet

3 more things to do to end out the fiscal period. Adjusting entries Remember those entries are exactly like what we do on the worksheet. Closing Entries This is new for us. Let look at what we need to do with this.

Closing Entries from accounting I Accounting II Close all of the Credit Side accounts in the Income Statement column to Income Summary account Close all of the Debit Side accounts in the Income Statement column to the Income Summary account Close the Income Summary Account to the Capital Account Close Drawing Account to the Capital Account Close all of the Credit Side accounts in the Income Statement column to Income Summary-General account Close all of the Debit Side accounts in the Income Statement column to Income Summary-General account Close the Income Summary Account to the Retained Earnings Close Dividend Account to the Retained Earnings Account

Post-Closing Trial Balance This is to make sure that all of the accounts that we have open are in balance and ready for the next fiscal period. Please look on page 122

Here it is…… Problems 4-1,2,3,4,5,6,8 Computer Problem 4-7 (you must have 4-5 done before you can do( 4-7)