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Accounting for
Merchandising Businesses
Warren
Reeve
Duchac
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Financial
Accounting
14e
Operating Cycle
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Financial Statements
(slide 1 of 2)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Financial Statements
(slide 2 of 2)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purchases Transactions
(slide 1 of 3)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purchases Transactions
(slide 2 of 3)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purchases Transactions
(slide 3 of 3)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purchases Discounts
(slide 1 of 2)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purchases Discounts
(slide 2 of 2)
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The buyer may use the debit memo as the basis for
recording the return or allowance or wait for
approval from the seller (creditor).
In either case, the buyer debits Accounts Payable and
credits Merchandise Inventory.
Before paying an invoice, a buyer may return
merchandise or be granted a price allowance for an
invoice with a purchase discount.
o
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales Transactions
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cash Sales
Sales on Account
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Customer Discounts
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Freight
In this case, the terms are said to be FOB (free on board) shipping
point. This term means that the buyer pays the freight costs from the
shipping point to the final destination.
In this case, the terms are said to be FOB (free on board) destination.
This term means that the seller pays the freight costs from the shipping
point to the buyers final destination.
The seller may prepay the freight, even though the terms are
FOB shipping point. The seller will then add the freight to the
invoice.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales Taxes
At the time of a cash sale, the seller collects the sales tax.
When a sale is made on account, the seller charges the tax
to the buyer by debiting Accounts Receivable.
The seller credits the sales account for the amount of the
sale and credits the tax to Sales Tax Payable.
The seller pays to the taxing authority (state) the amount of
the sales tax collected by debiting Sales Tax Payable and
crediting Cash.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Trade Discounts
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Balance Sheet
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Closing Entries
3.
4.
Debit each temporary account with a credit balance, such as Sales, for
its balance and credit Income Summary.
Credit each temporary account with a debit balance, such as the various
expenses, and debit Income Summary. Since Cost of Merchandise Sold is
a temporary account with a debit balance, it is credited for its balance.
Debit Income Summary for the amount of its balance (net income) and
credit the owners capital account. The accounts debited and credited
are reversed if there is a net loss.
Debit the owners capital account for the balance of the drawing
account and credit the drawing account.
After the closing entries are posted to the accounts, a postclosing trial balance is prepared, which includes the asset,
contra asset, liability, and owners capital accounts.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales
Average Total Assets
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2.
3.
4.
Debit each temporary account with a credit balance, such as Sales, for its
balance and credit Income Summary. Since Purchases Discounts and Purchases
Returns and Allowances are temporary accounts with credit balances, they are
debited for their balances. In addition, Merchandise Inventory is debited for its
end-of-period balance based on the end-of-period physical inventory.
Credit each temporary account with a debit balance, such as the various
expenses, and debit Income Summary. Since Freight In is a temporary account
with a debit balance, it is credited for its balance. In addition, Merchandise
Inventory is credited for its balance as of the beginning of the period.
Debit Income Summary for the amount of its balance (net income) and credit the
owners capital account. The accounts debited and credited are reversed if
there is a net loss.
Debit the owners capital account for the balance of the drawing account and
credit the drawing account.
2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.