1. Year-end accounting for merchandising busines
Chapter 15

2. Income statement (easy version) p. 571
Revenues: Net sales $100 Interest revenue 100 Rent revenue 100 Subscription revenue 100 Total revenues 500 Expenses: Cost of goods sold 100 Wages expense… Total expenses 200 Net Income 300

3. Income statement (Multiple-step)
Check out page 572 (too long to put here!)

4. Statement of owners’ equity p. 573
Owner, capital, January 1, 20xx $500,000 Add additional investments 50,000 Total investment 550,000 Net income (loss) for the year $25,000 Less (Plus) withdrawals for the year 3,000 Increase (Decrease) in capital 22,000 Owner, capital, December 31, 20xx $572,000

5. Balance sheet p. 574
Current assets – assets expected to be used up or converted to cash within one year
Examples – cash, accounts receivable, notes receivable, supplies, prepaid insurance
Current liabilities – liabilities expected to be paid/addressed within one year
Examples – accounts payable, notes payable, wages payable, sales tax payable, FICA tax payable
Working capital – difference between current assets and current liabilities
Practicality – a business’s ability to meet day to day operations
Useful to investors (i.e. – Shark Tank)

6. Balance sheet analysis
Current ratio – measure of ability to pay current liabilities
Current assets / current liabilities
Quick ratio – measure of ability to raise cash quickly (money not tied up)
Quick assets / current liabilities
Quick assets = cash, accounts receivable, temporary investments that can be cashed in quickly

7. Interstatement analysis
Return on owner’s equity – net income relative to owner’s investment in the company
Net income / average owner’s equity
Accounts receivable turnover – how many times accounts receivable were collected during the accounting period
Net credit sales for the period / average accounts receivable
Average accounts receivable – the average that customers owe you at any time
(Beginning balance + ending balance) / 2
Average collection period – how long it takes customers to pay
365 / accounts receivable turnover

8. More Interstatement analysis
Inventory turnover – how often you sold your inventory
Cost of goods sold for the period / average inventory
Average days to sell– how long you keep your inventory on the shelf before it’s sold
365 days / inventory turnover

9. Closing entries
Purpose – to close out all temporary accounts (income statement accounts, owner’s drawing account) and prepare the ledger ready for another, brand new accounting period.
Steps:
1. All income statement accounts with credit balances are debited -> Income Summary.
2. All income statement accounts with debit balances are credited -> Income Summary.
3. Resulting balance in Income Summary (Net Income/Loss) transferred to owner’s capital.
4. Balance in owner’s drawing account is transferred to owner’s capital account.
Post-Closing Trial Balance
Purpose – to prove the general ledger is in balance (debits = credits).

10. Reversing entries
Purpose – to avoid the double counting of revenues or expenses and to allow for the efficient processing of documents. It is simply the reversal of some adjusting entries, done on the first day of the year. Wages Payable and Interest Payable are two good examples.

11. Reversing entries
Example: You owe employees $5,000 for the last week of the year, payable Friday evening. December 31, however is on Wednesday.
Adjusting entry: Wages Expense 3,000 (December 31)
Wages Payable 3,000
Closing entry: Income Summary 3,000 (December 31)
Wages Expense 3,000
Reversing entry: Wages Payable 3,000 (January 1)
Wages Expense 3,000
Payment: Wages Expense 5,000 (January 2)
Cash 5,000

12. assignments Read pages 568 – 583 Exercises 3, 4, 7
Problems 8A, 9A, 10A
Pages