1. Principles of Accounting I
Asst.Prof.Dr. Panchat Akarak
School of Accounting
Chiang Rai Rajabhat University
Principles of Accounting I

2. Review Vocabulary-Periodic
Accounts Title
Balance
Sales Revenues
Cr.
Gross Sales
Net Sales
Cash Discount/Sales Discount
Dr.
Sale Returns and Allowances
Inventories
Purchases of Merchandise
Purchases Returns and Allowances
Purchases Discount
Principles of Accounting I

3. Principles of Accounting I
Vocabulary-Periodic
Accounts Title
Balance
Cost of Goods Sold
Dr.
Transportation Costs
Transportation-In
Transportation-Out
Beginning Inventory
Net cost of purchases
Cost of goods available for sale
Ending Inventory
Principles of Accounting I

4. Principles of Accounting I
Vocabulary-Periodic
Accounts Title
Balance
Operating expense
Dr.
Gross margin/Gross Profit
Other revenues
Cr.
Other expense
Selling expense
Administrative expense
Principles of Accounting I

5. Accounting Cycle 1 Prepare Post. Closing Trial Balance
Post Entries to Ledger Accounts
Prepare Unadjusted Trial Balance
Adjusting Journal Entries
Prepare Adjusted Trial Balance 1
Record Journal Entries
Record Reversing Entries/
Opening Entries
Prepare Post. Closing Trial Balance
Record Closing Entries
Prepare Financial Statement
Principles of Accounting I

6. Classified Income Statement
Revenues and expenses are the only two categories on the unclassified income statement while the classified income statement divides revenues and expense into operating and non-operating items.
Principles of Accounting I

7. Classified Income Statement
A classified income statement separates operating expenses into selling and administrative expenses.
A classified income statement is also known as a multiple-step income statement.
Principles of Accounting I

8. Classified Income Statement
Income statement for a merchandising company usually has four sections.
3.1 Operating revenues-sales and dales
contra accounts.
3.2 Cost of goods sold.
3.3 Operating expenses.
3.4 Non-operating revenues and expenses
–other revenues and other expenses.
Principles of Accounting I

9. Classified Income Statement
4. Gross margin is the excess of net sales over cost of goods sold. Such as; Sales-net xx Less Cost of Goods sole xx Gross margin xx
Principles of Accounting I

10. Example Classified Income Statement
Sale
xxx
Less Sale Returns and Allowance xx
Sale Discounts
Net Sale
Cost of Goods Sold.-
Inventory Beginning
Added Purchases
Transportation-In
total
Less Purchase returns & Allowance xx
Purchase Discounts xx
Cost of goods available for sale
Less Inventory ending
Gross margin
Principles of Accounting I

11. Example Classified Income Statement
Gross margin
xxx
Less Operating Expense.-
Selling Expense
Administrative Expense
Net Income for operating
Add Other Revenue
total
Less Other Expense
Net Income
Principles of Accounting I

12. The work sheet for a merchandising company
A merchandising company’s work sheet contains several additional steps to those of a service company’s work sheet. 1. All revenue accounts and contra purchases accounts are carried to the Income Statement credit column.
Principles of Accounting I

13. The work sheet for a merchandising company
2. All expense accounts, contra revenue accounts, beginning inventory, purchases, and transportation-in are carried to the Income Statement debit column. 3. The ending merchandise inventory is entered in the Income Statement credit column and the Balance Sheet debit column. (Financial Position Statement)
Principles of Accounting I

14. Financial Position Statement
Accounts Name
Trial
Balance
Income Statement
Financial Position Statement
Dr.
Cr.
Cash
xxx
Inventory Beginning
Sales
Sales Returns and Allowance xx
Sales Discounts
Purchases
Purchases Returns and Allowance
Purchases Discounts
Transportation-In
Inventory Ending***
Principles of Accounting I

15. Financial Statements for a Merchandising company
After the work sheet has been completed, the financial statements are prepared from data prepared in the Income Statement and Balance sheet columns.
Income Statement
The focus on a merchandising company’s in come statement is on the determination of cost of goods sold.
Principles of Accounting I

16. Company name Income Statement For year end December 31, 2016
Sale
xxxx
Less Sale Returns and Allowance
xxx
Sale Discounts
Net Sale
Cost of Goods Sold.-
Inventory Beginning
Added Purchases
Transportation-In
total
Less Purchases returns xx
Purchases Discounts xx
Cost of goods available for sale
Less Inventory ending
Gross margin
Principles of Accounting I

17. Financial Statements for a Merchandising company
Statement of Owner’s Equity
The statement of owner’s equity summarizes the transactions affecting the owner’s capital account balance.
Principles of Accounting I

18. Financial Statements for a Merchandising company
Balance Sheet /or
Financial Position Statement
The Merchandising company’s balance sheet differs from the service company’s balance sheet only because of the addition of Merchandise Inventory as a current asset.
Principles of Accounting I

19. Financial Position Statement
Account Form
Assets
Liabilities & Equity
Current Assets:
Current Liabilities:
Cash Xx
Bank overdraft xx
Accounts Receivable
Accounts Payable
Note Receivable
Note Payable
Inventory
other Liabilities
Noncurrent Assets:
Noncurrent Liabilities:
Land
Loan
Building-net
Owners Equity:
Equipment-net
Capital-
Total Assets
Total Liabilities &Equity
Principles of Accounting I

20. Financial Position Statement Liabilities and Owner’s Equity
Company Name
Financial Position Statement
December 31, 20xx
Report Form
Baht
Assets
Current Assets:
Cash
Accounts Receivable
Inventory
xxx
Unexpired Insurance
Noncurrent Assets:
Land
Building
Accumulated depreciation-building
Equipment
Accumulated depreciation-Equipment
Total Assets
Liabilities and Owner’s Equity
Current Liabilities:
Accounts Payable
Owner’s Equity
Capital
Drawing
Net Income
Total Liabilities and Owner’s Equity
Principles of Accounting I

21. Principles of Accounting I
Example
The following condensed trial balance was taken from the ledger of the Sun shop at the end of its annual accounting period: The sun shop Trial Balance December 31, 2016
Principles of Accounting I

22. Principles of Accounting I
Cash
1,440
Inventory (Beginning)
6,400
Land Property and Equipment-net
9,600
Notes Payable
3,520
Sun, Capital
12,960
Sun, Drawing
4,800
Sales
41,840
Sales Returns and Allowances
300
Sales Discounts
100
Purchases
24,000
Purchases Returns and Allowances
200
Purchases Discounts
280
Transportation-In
160
Selling Expenses
8,000
Administrative Expenses
4,000
Total = 58,800
Principles of Accounting I

23. Principles of Accounting I
Example (Cont.)
Required:
1. copy the trial balance onto a work sheet from and complete the work sheet under the assumptions that there are no adjustments. The ending inventory is $7,200.
2. Prepare compound closing entries from the work sheet.
3. Prepare Income Statement
Answer Cost of goods Sold = 22,880
Net Income = 6,560
Principles of Accounting I

24. Principles of Accounting I
Cash
1,440
Inventory Beginning
6,400
Land Property and Equipment-net
9,600
Notes Payable
3,520
Sun, Capital
12,960
Sun, Drawing
4,800
Sales
41,840
Sales Returns and Allowances
300
Sales Discounts
100
Purchases
24,000
Purchases Returns and Allowances
200
Purchases Discounts
280
Transportation-In
160
Selling Expenses
8,000
Administrative Expenses
4,000
Total
58,800
Principles of Accounting I

25. Principles of Accounting I
Account Name
Trial Balance
Income Statement
Financial Position
Dr.
Cr.
Cash
1,440
Inventory Beginning
6,400
7,200
Land Property &Equipment
9,600
Notes Payable
3,520
Sun, Capital
12,960
Sun, Drawing
4,800
Sales
41,840
Sales Returns and Allowances
300
Sales Discounts
100
Purchases
24,000
Purchases Returns and Allowances
200
Purchases Discounts
280
Transportation-In
160
Selling Expenses
8,000
Administrative Expenses
4,000
Total
58,800
42,960
49,520
23,040
16,480
Net Income
6,560
Principles of Accounting I

26. The sun shop Income Statement For year end December 31, 2016
Sale
41,840
Less Sale Returns and Allowances
300
Sale Discounts
100
400
Net Sale
41,440
Cost of Goods Sold.-
Inventory Beginning
6,400
Added Purchases
24,000
Transportation-In
160
total
24,160
Less Purchases returns and Allowances
200
Purchases Discounts
280
23,680
Cost of goods available for sale
30,080
Less Inventory ending
7,200
22,880
Gross margin
18,560
Principles of Accounting I

27. The sun shop Income Statement For year end December 31, 2016
Sale
41,840
Less Sale Returns and Allowance
300
Sale Discounts
100
400
Net Sale
41,440
Less Cost of goods sold
22,880
Gross margin
18,560
Less Operating Expense.-
Selling Expense
8,000
Administrative Expense
4,000
12,000
Net Income
6,560
Principles of Accounting I

28. The sun shop Financial Position Statement End, December 31, 2016
Assets
Current Assets
Cash
1,440
Inventory
7,200
Noncurrent assets
8,640
Property plant and equipment-net
9,600
Total Assets
18,240
Current Liabilities
Note Payable
3,520
Owner’s equity
Sun, Capital
12,960
Net Income
6,560
Sun, Drawing
(4,800)
14,720
Total Liabilities and Owner’s equity
Principles of Accounting I

29. Principles of Accounting I
Closing entries
Closing entries may be prepared directly from the work sheet using information appearing in the Income Statement columns.
1. Merchandise Inventory (Ending balance), Sales, Purchase Discounts, Purchase Returns and allowances accounts are debited and Income summary is credited for the total.
Principles of Accounting I

30. Principles of Accounting I
Closing entries
2. Merchandise Inventory (beginning balance), Sales Discounts Sales Returns and Allowances, Purchases, Transportation-in, Selling expense, and Administrative Expense accounts are credited and Income Summary is debited for the total.
Principles of Accounting I

31. Principles of Accounting I
Closing entries
3. The balance of Income Summary is closed to the capital account just as in a service company.
4. The owner’s drawing account is closed to the owner’s capital account just as in a service company.
Principles of Accounting I

32. Principles of Accounting I
Closing Entry
Closing Entry were 2 types
1. Closing to Cost of Goods Sold
2. Closing direct to Income Summary
Principles of Accounting I

33. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Inventory Ending xxxx Sale xxxx Purchase Returns & Allowance xxx Purchase Discount xxx Income Summary xxxx To close credit account balance
Principles of Accounting I

34. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Income Summary xxxx Cr. Inventory Beginning xxxx Sales Returns & Allowance xxxx Sales Discount xxxx Purchases xxxx Transportation-In xxxx Selling Expense xxxx Administrative Expenses xxxx To close debit account balance
Principles of Accounting I

35. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Income Summary xx Cr. Capital xx To close Income Summary to Capital account
Principles of Accounting I

36. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Capital xxx Cr. Drawing XXX To close Drawing to Capital
Principles of Accounting I

37. Alternative Closing Procedure
An alternative closing procedure is to transfer the beginning inventory balance and balances in purchase-related accounts to the Cost of Goods Sold account in an adjusting entry. The ending inventory is established by debiting Inventory and crediting Cost of Goods Sold. Finally the Cost of Goods Sold account is closed to Income Summary by debiting Income Summery and crediting Cost of Goods Sold.
Principles of Accounting I

38. Closing Entry Accounts related COGS to COGS
20xx Dec.31 Dr. Inventory Ending xxxx Purchase Returns & Allowance xxxx Purchase Discount xxxx Cost of Goods Sold*** xxxx Inventory Beginning xxxx Purchases xxxx Transportation-In xxxx To close account balance related Cost of Goods Sold
Principles of Accounting I

39. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Sales xx Other revenues xx Income Summary (diff)** xx Cr. Cost of Goods Sole*** xx Sales Returns and Allowance xx Sales Discounts xx Selling expenses xx Administrative expenses xx To close Income Summary to Capital account
Principles of Accounting I

40. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Income Summary (Profit) xx Cr. Capital- xx To close Income Summary to Capital account
Principles of Accounting I

41. Principles of Accounting I
Closing Entry
20xx Dec.31 Dr. Capital- xxx Cr. Drawing XXX To close Drawing to Capital
Principles of Accounting I

42. Example Sun Company Closing Entry
2016 Dec.31 Dr. Inventory Ending 7,200 Sale 41,840 Purchase Returns & Allowance 200 Purchase Discount 280 Income Summary 49,520 To close credit account balance
Principles of Accounting I

43. Example Sun Company Closing Entry
2016 Dec.31 Dr. Income Summary 42,960 Cr. Inventory Beginning 6,400 Sales Returns &Allowance 300 Sales Discounts 100 Purchases 24,000 Transportation-In 160 Selling Expense 8,000 Administrative Expenses 4,000 To close debit account balance
Principles of Accounting I

44. Example Sun Company Closing Entry
2016 Dec.31 Dr. Income Summary 6,560 Cr. Sun, Capital 6,560 To close Income Summary to Capital account
Principles of Accounting I

45. Example Sun Company Closing Entry
2016 Dec.31 Dr. Sun, Capital 4,800 Cr. Sun, Drawing 4,800 To close Sun Drawing to Capital
Principles of Accounting I

46. Principles of Accounting I
Step of bookkeeping
Step 1 Recorded 1. General Journal Step 2 Posting 2. Ledger/ GL Step 3 Balance Accounts 3. Trial Balance Step 4 Recorded Adjusted 4. General Journal Step 5 Prepare worksheet 5. Working Paper Step 6 Prepare F/S 6. Financial Statement Step 7 Prepare Closing 7. General Journal Step 8 Recorded Opening/ 8. General Journal Reversing entries
Principles of Accounting I

47. The Accounting Cycle Summarized
The Work Sheet 10 Columns
The Trial Balance Columns
The Adjustments Columns
The Adjusted Trial Balance Columns
The Income Statement Columns
The Financial Position Statement Columns
Principles of Accounting I

48. Financial Position Statement
Working paper 10 Columns
Accounts Titles
AC. No
Unadjusted
Trial Balance
Adjusted
Income Statement
Financial Position Statement
Dr.
Cr.
Principles of Accounting I

49. The Accounting Cycle Summarized
Preparing Financial Statements from the work sheet (or Working paper)
Income Statement
Revenues and Expenses
Financial Position Statement.
Assets, Liabilities and Owner’s Equity
Principles of Accounting I

50. Principles of Accounting I
Financial Statement
Income Statement:-
-Revenues
-Expenses
-Profit/Loss
Principles of Accounting I

51. Principles of Accounting I
Income Statement
Sale
xxx
Less Sale Returns and Allowance and Sale Discounts
Sale-Net
Less Cost of Goods Sole***
Gross margin
Less Operating Expense.-
Selling Expense
Administrative Expense
Net Income for operating
Add Other Revenue
total
Less Other Expense
Net Income
Principles of Accounting I

52. Principles of Accounting I
Cost of Good Sold***
Cost of Goods Sold.-
Inventory Beginning xx
Added Purchases-net.-
Purchase Xx
Transportation-In
total
Less Purchases returns & Allowance xx
Purchases discount xx
Cost of goods available for sale
Less Inventory ending
Cost of Goods Sold
Principles of Accounting I

53. Principles of Accounting I
Income Statement
Expenses
Revenues
Cost of goods sold*** Xx
Sale revenues xx
Salaries
Other revenues
Sale Returns and Allowance
Sale Discounts
Rent expense
Selling expense
Advertising Expenses
Transportation-Out
Depreciation Expense
Utilities Expenses
Bad debt
Net Income
Total
Principles of Accounting I

54. Principles of Accounting I
Financial Statement
Financial Position Statement
-Assets
-Liabilities
-Owner’s Equity
Principles of Accounting I

55. Financial Position Statement
Assets
Liabilities & Equity
Current Assets
Current Liabilities
Cash Xx
Bank overdraft xx
Accounts Receivable
Accounts Payable
Note Receivable
Short term loan
Inventory
Note Payable
Supplies
other Liabilities
Noncurrent Assets
Noncurrent Liabilities
Land
Loan
Building-net
Owner’s Equity
Equipment-net
Capital-
Total Assets
Total Liabilities & Equity
Principles of Accounting I

56. The End
Thank you for your Attention Q & A
Principles of Accounting I