1. Completion of the Accounting Cycle for a Merchandise Company
Chapter 12

2. Preparing financial statements for a merchandise company.
Learning Objective 1
Preparing financial statements
for a merchandise company.

3. Learning Unit 12-1 (Preparing Financial Statements)
Net sales –
Cost of goods sold =
Gross profit

4. Learning Unit 12-1 (Preparing Financial Statements)
Gross profit –
Operating expenses =
Net income from operations

5. Learning Unit 12-1 (Preparing Financial Statements)
Net income from operations +
Other income –
Other expenses =
Net income

6. Learning Unit 12-1 (Preparing Financial Statements)
Art’s Wholesale Clothing Company
Statement of Owner’s Equity
For Year Ended December 31, 200x
Art’s, capital, January 1, 200x $ 7,905
Net income for the year $13,745
Less: Withdrawals for the year ,600
Increase in capital ,145
Art’s, capital, December 31, 200x $13,050

7. Learning Unit 12-1 (Preparing Financial Statements)
Art’s Wholesale Clothing Company
Classified Balance Sheet
December 31, 200X
Assets Liabilities
Current assets: Current liabilities:
Cash $13,020 Accounts payable $17,900
Accounts receivable ,500 Salary payable
Other current assets ,900 Other payables ,420
Total current assets $32,420 Total current liabilities $20,920
Mortgage payable ,000
Plant assets: Owner’s equity:
Equipment $4, Art Newner, capital $13,050
Less: Accum. dep ,550
Total liabilities and
Total assets $35,970 owner’s equity $35,970

8. Learning Objective 2
Recording adjusting
and closing entries.

9. Learning Unit 12-2 (Journalizing and Posting)
Adjusting entries shown on the
worksheet are journalized.
Adjusting entries are then posted
to the proper accounts.

10. Learning Unit 12-2 (Journalizing and Posting)
All Discount plus Returns and
Allowances accounts are temporary
accounts that have to be closed.
The account Freight-In is also a temporary
account that needs to be closed.

11. Learning Unit 12-2 (Journalizing and Posting)
Step 1
Close all balances on the income
statement credit column of the
worksheet except Income Summary.
Close all balances on the income
statement debit column of the
worksheet except Income Summary.
Step 2 8

12. Learning Unit 12-2 (Journalizing and Posting)
Step 3
Transfer the balance of the Income
Summary account to the Capital account.
Transfer the balance of the Withdrawal
account to the Capital account.
Step 4 8

13. Preparing a post-closing
Learning Objective 3
Preparing a post-closing
trial balance.

14. Learning Unit 12-2 Example
Cash $12,920
Petty cash
Accounts receivable ,500
Inventory ,000
Supplies
Prepaid insurance
Equipment ,000
Total $36,420
Art’s Wholesale Clothing Company
Post-closing Trial Balance
December 31, 200X

15. Learning Unit 12-2 Example
Art’s Wholesale Clothing Company
Post-closing Trial Balance
December 31, 200X
Accumulated depreciation $
Accounts payable ,900
Salary payable
Other payables ,420
Art Newner, capital ,050
Total $36,420

16. Completing reversing entries.
Learning Objective 4
Completing reversing entries.

17. Reversing Entries An optional way to handling some adjusting entries
Increase in an asset account
(no previous balance)
Increase in a liability account
(no previous balance)

18. Learning Unit 12-3 (Reversing Entries Example)
December 31
Salaries Expense
Salaries Payable
Adjusting entry

19. Learning Unit 12-3 (Reversing Entries Example)
January 1
Salaries Payable
Salaries Expense
Reversing entry

20. Learning Unit 12-3 (Reversing Entries Example)
January 1
Salaries Expense 2,000
Cash ,000
Paid salaries

21. End of Chapter 12