Presentation on theme: "Financial Reporting for a Departmentalized Business"— Presentation transcript:
1 Financial Reporting for a Departmentalized Business Chapter 4Financial Reporting for a Departmentalized Business
2 Terms that you need to know Fiscal PeriodThe length of time which a business summarizes and reports financial information.Departmental Statement of gross profitProvides 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.
3 Why do we use Departmental statements of gross profit We use it to determine ending merchandise inventory.Two types of computing inventoryPeriodicPhysical inventoryPerpetualBook inventoryWe use the gross profit method of estimating an inventory with this type of
4 Estimating Ending Merchandise inventory Calculating Net Purchases and Net SalesPurchases – Purchase Return and Allowances – Purchases Discount = Net Purch.Sales – Sales Return and Allowance – Sales Discount = Net Sales
5 Interim Departmental Statement of Gross Profit MastersportInterim Departmental Statement of Gross ProfitFor Month Ended June 30, XXXXGolf% of Net SalesTennisTotalOperating RevenueNet Sales100%Cost of Merchandise Sold:Est. Mdse. Inv., June 1Net Purchases8916.4Mdse Available for Sale317177Less Est. End. Inv. June 3055%Gross Profit on Operations44%
6 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.
8 For Year Ended December 31, 200x MasterSportWork SheetFor Year Ended December 31, 200xAccount TitleTrial BalanceAdjustmentsIncome StatementBalance SheetDebitCreditThe 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 worksheetThen 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.
9 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
10 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.
11 Review of adjustments and there corresponding accounts Allowance for uncollectible accountsMerchandise Inventory – golf, tennisSupplies – office, storeAccumulated Depreciation – store, office equipmentUncollectible accounts expenseIncome summary –golf, tennisSupplies expense – office, storeDepreciation expense – store, office equipment
12 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 ExpenseFederal income tax payablePlease look with me on page
13 Why the worksheet Check the balance of the general ledger Bring up to date accounts- using adjustmentsDetermine what goes on what sheet- Income statement, balance sheet (does the income summary account remind you of anything?Determine net income.
14 For Year Ended December 31, 200x MasterSportWork SheetFor Year Ended December 31, 200xAccount TitleTrial BalanceAdjustmentsIncome StatementBalance SheetDebitCredit TotalsNet Income after Fed. Inc. Tax Net Income and making sure that both the debit and the credit are in balance from both columns
15 4-3 Financial Statements for a Departmentalized Business The 4 financial statements that you will prepareDepartmental Statement of Gross ProfitIncome StatementStatement of Stockholders’ EquityBalance sheet
16 Departmental Statement of Gross Profit Used to help us determine the actual ending periodic inventories for each department
17 Departmental Statement of Gross Profit MasterSportDepartmental Statement of Gross ProfitFor Year Ended December 31, 200xGolf%of Net SalesTennisTotalOperating RevenueNet Sales$ 344,476.46100%$430,154.70$ 774,631.16Cost of Merchandise Sold:Mdse. Inventory Jan 1$ 18,434.61$199,844.60$ 218,279.21Net Pruchases$203,404.25$218,534.55$ 421,938.80Mdse Available for Sale$389,838.86$418,379.15$ 808,218.01Less Ending Inv. Dec. 31$204,855.00$190,484.60$ 395,339.60Cost of Merchandise Sold$ 184,983.8653.7%$227,894.5553.0%$ 412,878.4153.3%Gross Profit on Operations$ 159,492.6046.3%$202,260.1547.0%$ 361,752.7546.7%
18 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.
19 Statement of Stockholders Equity 2 major sectionsCapital StockTotal shares of ownership in a corporations.Retained EarningsAn amount earned by a corporation and not yet distributed to stockholders
20 This is the number that we use to carry over to the Balance Sheet MasterSportStatement of Stockholders EquityFor Year Ended December 31, 200xCapital Stock:$ Per ShareJanuary 1, ,000 shares Issued$340,000.00Issued during Current Year, None$Balance December 31, 200x, 200 shares IssuedRetained Earnings:Balance January 1, 200x$ 42,210.50Net Income after Federal income tax for 200x$55,970.20Less Dividends Declared during 200x$30,000.00Net Increase during 200x$ 25,970.20Balance, December 31, 200x$ 68,480.70Total Stockholders Equity December 31, 200x$408,180.70This is the number that we use to carry over to the Balance Sheet
21 3 more things to do to end out the fiscal period. Adjusting entriesRemember those entries are exactly like what we do on the worksheet.Closing EntriesThis is new for us.Let look at what we need to do with this.
22 Closing Entries from accounting I Accounting IIClose all of the Credit Side accounts in the Income Statement column to Income Summary accountClose all of the Debit Side accounts in the Income Statement column to the Income Summary accountClose the Income Summary Account to the Capital AccountClose Drawing Account to the Capital AccountClose all of the Credit Side accounts in the Income Statement column to Income Summary-General accountClose all of the Debit Side accounts in the Income Statement column to Income Summary-General accountClose the Income Summary Account to the Retained EarningsClose Dividend Account to the Retained Earnings Account
23 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
24 Here it is……Problems 4-1,2,3,4,5,6,8Computer Problem 4-7 (you must have 4-5 done before you can do( 4-7)