Accounting for a Merchandising Business

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All right. Here we are with the third and

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final

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uh part to the example for chapter four

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and in this one we're going to be doing

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the closings and the post post closing

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trial balance.

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So here's again here's our t tables

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nothing has changed

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actually this one doesn't have the

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retained earnings like the other ones

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did so that's actually a good thing

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because we're not supposed to

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uh we shouldn't have been there. So we

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need to do the

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closings first and remember the closings

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we only affect the temporary accounts we

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only close out the temporary accounts or

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what I call the red accounts,

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revenues, expenses, and dividends so I'm

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just going to go ahead and lay out those

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and only those

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get rid of the rest of them for right

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now. So there's our revenues our expenses

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and our 

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t tables and we know that we close

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out our revenues and our expenses to a

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in an intermediate account called

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uh income summary, so let's go ahead and

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create the income summary t table there.

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All right. So let's start with the rs the

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reds uh for

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the r in red which is revenues so sales

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revenue we have

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a credit account of thirty thousand so

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in order to get rid of that credit

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account we need to debit it

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thirty thousand, and if we debit sales

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revenue thirty thousand then we need to

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credit

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income summary t table by 30 000 as

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well,

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so debit sales revenue credit income

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summary that's what our

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journal entry is going to be our

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corresponding journal entry.

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All right. Let's look at gain on the sale

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of land,

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same thing we have a credit of 2500 so

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in order to get rid of it we need to

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debit

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2500 that cancels that out and if we

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debit gain on sale plan for 2500 then we

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need to credit

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income summary for the same amount, so

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again

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debit gain on sale of land credit income

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summary for 2 500.

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All right. Let's look at sales revenue

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excuse me sales returns and allowances,

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I have a debit balance of 2 000

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so in order to get rid of it I need to

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credit that 2000

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and if I credit sales return allowances

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for 2000 then I need to debit

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income summary for that 2000. So again

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my journal entries can be debit income

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summary and credit sales

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or sales return allowance for 2000.

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Same thing for sales discount, I'm going

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to

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credit sales discount for 100 to get rid

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of that to close it out

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and if I credit it then I'm going to

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need to debit income summary for that

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100. So I'll go ahead and do that post

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my or

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journalize that so debit income summary

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for 100

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credit sales discount for 100. All right.

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Now let's look at cogs

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I have a debiting balance of fourteen

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thousand one hundred so it's closed it

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out I will credit it fourteen thousand

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one hundred

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and if I credit it then I will debit uh

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income summary for the same fourteen

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thousand one hundred,

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my journal entry will be income summary

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for fourteen thousand one

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and credit cost of goods sold for 14001.

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S&a expense same thing I'm going to

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credit 3000

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to close that out and if I credit it

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then I need to debit income summary for

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3 000. So I'll do that there journal

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entry would be income summary and

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selling an admin expense

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for 3 000. All right. Delivery expense

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same thing 300 on the credit side

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that'll close it out

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if I credit delivery expense for 300

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then I need to debit

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income summary for 300. So I'll do that

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to my journal entry so income summary

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300 delivery expense

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300. And then finally I have my interest

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expense same thing credit 250

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to close that out and if I credit it I

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need to

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debit income summary so I'll do that and

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my journal entry will be

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income summary 250 and interest expense

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250. Okay. So that takes care of that now

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I can

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total up my income summary find my

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account balance for that

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add up the debits add up to credit

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subtract two that's going to give me

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twelve thousand seven fifty.

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And the next step would be to close that

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out to retained earnings, now up to this

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point we shouldn't have had a retained

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earnings t table,

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so we're going to create one and in

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order for me to get rid of that twelve

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thousand seven

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fifty on the credit side of income

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summary I need to debit income summary

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by twelve thousand seven hundred fifty,

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and if I debit income summary by twelve

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thousand seven fifty then I need to

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credit

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retained earnings for twelve thousand

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seven fifty.

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Now the next step would also be to close

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dividends but remember we don't have

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dividends in this one so we don't have

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anything else to do

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to retain the earnings so we can also

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total out retained earnings excuse me

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put the journal entry there for

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debit income summary and credit retained

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earnings but we can also total out

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retained earnings to be

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twelve thousand seven fifty, and if we go

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back to our statement of retained

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earnings

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we will see that it will match up to our

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ending retained earnings that we found

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on the statement retained earnings which

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is exactly what we want,

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so that takes care of the closings. Now

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the last thing we need to do

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to finish up this accounting cycle is to

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do the post-closing trial balance,

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so we need to go back to our original t

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tables minus

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all the temporary ones, all I want to

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keep now is the permanent ones

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and so that is all the assets the

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liabilities and the equity plus the

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retained earnings.

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So if I list those out that's going to

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be cash for forty eight thousand eight

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sixty,

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accounts receivable still zero, inventory

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for eight thousand

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eight hundred ninety, again finish this

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up real quick

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land zero, ap zero, notes payables uh ten

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thousand,

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common stock is thirty five thousand, and

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now we have retained earnings of twelve

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thousand seven fifty,

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if I add up the debits that's going to

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give me a total of fifty seven seven

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fifty,

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and if I add up the credits that's going

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to give me a total of 57750,

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so we are good we did the

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entire accounting cycle for a single

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problem. So

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hopefully that was wasn't too terrible

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on you I know it took three

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three videos to do it but um you kind of

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get the idea

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of you know everything that goes into

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the accounting cycle so hopefully that

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made sense

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if you have any questions please let me

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know in the comments below. Y'all have a

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good one.

Related Topics

• What is Merchandising? – Financial Accounting
• Recognizing Inventory Sales – Financial Accounting
• Perpetual vs Period Systems – Financial Accounting
• Special Merchandising Transactions – Financial Accounting
• Adjustments for Inventory – Financial Accounting
• Multi-Step Income Statement – Financial Accounting
• Accounting Cycle for Merchandising Business Example Part 1
• Accounting Cycle for Merchandising Business Example Part 2
• Accounting Cycle for Merchandising Business Example Part 3