Worksheet for a Merchandising Business Chapter 15 Worksheet for a Merchandising Business

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 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: Beginning an 8-Column Work Sheet for a Merchandising Business

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)

TRANSFERRING GENERAL LEDGER ACCOUNT BALANCES TO A WORK SHEET Lesson 15-1 (GJ) TRANSFERRING GENERAL LEDGER ACCOUNT BALANCES TO A WORK SHEET RECORDING A TRIAL BALANCE ON A WORK SHEET 1 2 1. Write the titles of the general ledger accounts. 2. Write the balance of each account. 3. Total, prove, and rule the debit and credit columns. 3

Purpose 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 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: Book inventory - determined by general ledger accounts. Physical inventory - actually count the merchandise.

Merchandise 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 SHEET Merchandise Inventory Debit Credit Merchandise Inventory Jan. 1 Bal. 270,480.00 Dec. 31 Balance - $254,640.00

ANALYZING A MERCHANDISE INVENTORY ADJUSTMENT Lesson 15-1 (GJ) ANALYZING A MERCHANDISE INVENTORY ADJUSTMENT AFTER ADJUSTMENT BEFORE ADJUSTMENT What is the balance? What should the balance be? What must be done to correct the account balance? What adjustment is made? Income Summary Adj. (a) 15,840.00 Merchandise Inventory Jan 1 Bal. 270,480.00 Jan 1 Bal. 270,480.00 Adj. (a) 15,840.00 (Dec. 31 Bal. 254,640.00)

RECORDING A MERCHANDISE INVENTORY ADJUSTMENT 3 2 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment.

PLANNING ADJUSTMENTS ON A WORK SHEET Merchandise Inventory Debit Credit Merchandise Inventory Jan. 1 Bal. 294,700.00 Dec. 31 Balance - $ 298,900.00

Merchandise Inventory ANALYZING AN ADJUSTMENT WHEN ENDING MERCHANDISE INVENTORY IS GREATER THAN BEGINNING MERCHANDISE INVENTORY AFTER ADJUSTMENT BEFORE ADJUSTMENT Merchandise Inventory Jan 1 Bal. 294,700.00 Adj. (a) 4,200.00 (Dec. 31 298,900.00) Income Summary Adj. (a) 4,200.00

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?

Debit Merchandise Inventory $30,000.00 Adjusting Entry Debit Merchandise Inventory $30,000.00 Credit Income Summary $30,000.00

What is your adjusting entry? Jan. 31 Balance of Merchandise Inventory is $250,000.00 Dec. 31 Physical Inventory count is $180,000.00 What is your adjusting entry?

TERMS REVIEW inventory merchandise inventory TO DO: Work Together, pg 379 On your own, pg 379

CHAPTER 15-2: Adjusting and Recording Work Sheet Adjustments 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

ANALYZING A SUPPLIES ADJUSTMENT Lesson 15-1 (GJ) ANALYZING A SUPPLIES ADJUSTMENT AFTER ADJUSTMENT BEFORE ADJUSTMENT Supplies Expense—Office 4. Adj. (b) 4,730.00 Supplies—Office 1. Dec. 31 Bal. 6,480.00 Dec. 31 Bal. 6,480.00 4. Adj. (b) 4,730.00 2. (New Bal. 1,750.00) What is the balance? What should the balance be? What must be done to correct the account balance? What adjustment is made?

RECORDING SUPPLIES ADJUSTMENTS 3 2 1 1. Write the debit amounts. 2. Write the credit amounts. Label the two parts of this adjustment. ***What is the new balance of both supplies accounts??

ANALYZING 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

ANALYZING A PREPAID INSURANCE ADJUSTMENT AFTER ADJUSTMENT BEFORE ADJUSTMENT Insurance Expense 4. Adj. (d) 3,170.00 Prepaid Insurance Dec 31 Bal. 5,800.00 1. Dec 31 Bal. 5,800.00 4. Adj. (d) 3,170.00 2. (New Bal. 2,630.00) What is the balance? (5,800) What should the balance be? (2,630) What must be done to correct the account balance? What adjustment is made?

RECORDING A PREPAID INSURANCE ADJUSTMENT 3 2 1 1. Write the debit amount. 2. Write the credit amount. Label the two parts of this adjustment. **What is the new balance of the prepaid insurance account????

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

Chapter 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

COMPLETING AN 8-COLUMN WORK SHEET Lesson 15-1 (GJ) COMPLETING AN 8-COLUMN WORK SHEET 2 1 1. Extend balance sheet items to Balance Sheet columns. 2. Extend income statement items to Income Statement columns. 3. Total Income Statement and Balance Sheet columns. 4. Calculate net income or net loss. 5. Extend net income or net loss to Balance Sheet Debit or Credit column. 6. Total Income Statement and Balance Sheet columns. 7. Check that totals are in balance. 3 4 5 6 7

PAGE 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 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 BUSINESS (LEFT PAGE) 1. Record the trial balance. 2. Plan the adjustments. 1 2

A 10-COLUMN WORK SHEET FOR A MERCHANDISING BUSINESS (RIGHT PAGE) 3. Extend the balances in the Trial Balance columns to the Adjusted Trial Balance columns. 5 3 4. Total, prove, and rule the Adjusted Trial Balance columns. 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. 4 6

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!