Completion of the

Accounting Cycle for a

Merchandise Company

Chapter 13

13- 1
 Learning Objective 1

Preparing financial reports

for a merchandise company.

13- 2
 Learning Unit 13-1

Banks are interested in the revenue

producing areas of a merchandising company.

Expenses are linked to

products for a full view of success.

13- 3
 Learning Unit 13-1
Income Statement
–
Net Sales Cost of Goods Sold

–
= Gross Profit Operating Expenses

+
= Net Income from Operations Other Income

–
Other Expenses = Net Income
13- 4
 Learning Unit 13-1 Example
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 8,600
Increase in Capital 5,145
Art’s, Capital, December 31, 200x $13,050

13- 5
 Learning Unit 13-1 Example
Art’s Wholesale Clothing Company
Classified Balance Sheet
December 31, 200X
Assets Liabilities
Current Assets: Current Liabilities:
Cash $10,920 Accounts Payable $17,900
Accounts Receivable 14,500 Salary Payable 3,070
Inventory 2,300 Tax Payable 1,500
Total Current Assets $27,720 Total Liabilities $22,470
Plant Assets Owner’s Equity
Equipment $15,500 Capital $13,050
Less Accum. Dep. 7,700 7,800
Total Liabilities and
Total Assets $35,520 Owner’s Equity $35,520
13- 6
Learning Objective 2

Recording adjusting
and closing entries.

13- 7
 Learning Unit 13-2

 Adjusting entries shown on the worksheet

are journalized.
 Adjusting entries are then posted to the
proper accounts.

13- 8
 Learning Unit 13-2

 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.

13- 9
 Learning Unit 13-2

Close all balances on the income

statement credit column of the
work-sheet except Income Summary.

Close all balances on the income

statement debit column of the
work-sheet except Income Summary.

13- 10
 Learning Unit 13-2

Transfer the balance of the Income Summary

account to the Capital account.

Transfer the balance of the Withdrawal

account to the Capital account.

13- 11
Learning Objective 3

Preparing a post-
closing trial balance.

13- 12
Learning Unit 13-3 Example
Art’s Wholesale Clothing Company
Post-Closing Trial Balance
December 31, 200X

Cash $10,920
Accounts Receivable 14,500
Inventory 2,300
Equipment 15,500
Total $43,220

13- 13
 Learning Unit 13-3 Example
Art’s Wholesale Clothing Company
Post-Closing Trial Balance
December 31, 200X

Accumulated Depreciation $ 7,700

Accounts Payable 17,900
Salary Payable 3,070
Tax Payable 1,500
Owner’s Capital 13,050
Total $43,220
13- 14
 Learning Objective 4

Completing reversing entries.

13- 15
 Reversing Entries Example

Date Account and

Explanation. Debit Credit
Dec. 31 Salaries Expense 600
Salaries Payable 600
Adjusting entry

13- 16
 Reversing Entries Example

Date Account and

Explanation. Debit Credit
Jan. 1 Salaries Payable 600
Salaries Expense 600
Reversing entry

13- 17
 Reversing Entries Example

Date Account and

Explanation. Debit Credit
Jan. 1 Salaries Expense 2,000
Cash 2,000
Paid salaries

13- 18
End of Chapter 13

13- 19