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1
Accounting for
Merchandising
Businesses
6
1
2
After studying this chapter, you should
be able to:
1. Distinguish between the activities and
financial statements of service and
merchandising businesses.
2. Describe and illustrate the financial
statements of a merchandising
business.
2
3
After studying this chapter, you should
be able to:
3. Describe and illustrate the accounting for
merchandise transactions including:
 sale of merchandise
 purchase of merchandise
 transportation costs, sales taxes, trade discounts
 dual nature of merchandising transactions.
4. Describe the adjusting and closing process
for a merchandising business.
3
4
6-1
Objective 1
Distinguish between the
activities and financial
statements of service and
merchandising businesses.
4
5
6-1
Service Business
Fees earned
Operating expenses
Net income
$XXX
–XXX
$XXX
5
6
6-1
Merchandising Business
Sales
Cost of Merchandise Sold
Gross Profit
Operating Expenses
Net Income
$XXX
–XXX
$XXX
–XXX
$XXX
6
7
6-1
When merchandise is sold, the
revenue is reported as sales, and
its cost is recognized as an
expense called cost of
merchandise sold.
7
8
6-1
The cost of merchandise sold is
subtracted from sales to arrive at
gross profit. This amount is
called gross profit because it is
the profit before deducting the
operating expenses.
8
9
6-1
Merchandise on hand (not
sold) at the end of an
accounting period is called
merchandise inventory.
9
10
1-2
6-1
Example Exercise 6-1
On August 25, Gallatin Repair Service extended an offer of
During
year,
soldatfor
$125,000the
forcurrent
land that
had merchandise
been priced forissale
$150,000. On
Rp250,000,000
cash Repair
and forService
Rp975,000,000
onseller’s
account.
September 3, Gallatin
accepted the
The
cost of the
merchandise
sold is Rp735,000,000.
What
counteroffer
of $137,000.
On October
20, the land was assessed
is
amount
of thefor
gross
profit?
at athe
value
of $98,000
property
tax purposes. On December 4,
Gallatin Repair Service was offered $160,000 for the land by a
Follow
Myretail
Example
6-1what value should the land be recorded
national
chain. At
in Gallatin Repair Service’s records?
The gross profit is Rp490,000,000 (Rp250,000,000 +
Rp975,000,000
–Rp735,000,000).
Follow
My Example
1-1
$137,000. Under the cost concept, the land should be recorded at
the cost to Gallatin Repair Service.
10
10
For Practice: PE 6-1A, PE 6-1B
31
11
6-1
1111
12
6-2
Objective 2
Describe and illustrate the
financial statements of a
merchandising business.
12
13
Multiple-Step Income Statement
6-2
The multiple-step
income statement
contains several sections,
subsections, and
subtotals.
13
14
6-2
The Sales account
provides the total amount
charged to customers for
merchandise sold,
including cash sales and
sales on account.
14
15
6-2
Sales returns and
allowances are granted by
the seller to customers for
damaged or defective
merchandise.
15
16
6-2
Sales discounts are granted
by the seller to customers
for early payment of
amounts owed.
16
17
6-2
Net sales is determined by
subtracting sales returns
and allowances and sales
discounts from sales.
17
18
6-2
Multiple-Step Income Statement
SolusiNet
Income Statement
For the Year Ended December 31, 2009 (in Rp000)
Revenue from sales:
Sales
Rp720,185
Less: Sales returns and allowances Rp 6,140
Sales discounts
5,790
11,930
Net sales
Rp708,255
Cost of merchandise sold
525,305
Gross profit
Rp182,950
(Continued)
18
18
19
(In Rp000)
Operating expenses:
Selling expenses:
Sales salaries expense
Rp53,430
Advertising expense
10,860
Depr. Expense–store equipment
3,100
Delivery Expense
2,800
Miscellaneous selling expense
630
Total selling expenses
Rp 70,820
Administrative expenses:
Office salaries expense
Rp21,020
Rent expense
8,100
Depr. expense–office equipment
2,490
Insurance expense
1,910
Office supplies expense
610
Misc. administrative expense
760
Total admin. expenses
34,890
Total operating expenses
105,710
19
Income from operations
Rp 77,240
(Continued)
19
20
6-2
(In Rp000)
Other income and expenses:
Rent revenue
Interest expense
Net income
(Concluded)
Rp 600
(2,440)
(1,840)
Rp75,400
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20
21
6-2
Cost of merchandise sold
was discussed earlier. It is
the cost of the merchandise
sold to customers.
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22
6-2
As we discussed in Slide 16,
sellers may offer customers
sales discounts for early
payment of their bills. From
the buyer’s perspective, such
discounts are referred to as
purchase discounts.
22
23
6-2
The buyer may return merchandise
to the seller (a purchase return),
or the buyer may receive a
reduction in the initial price at
which the merchandise was
purchased (a purchase allowance).
23
24
6-2
Cost of Merchandise
Sold
Merchandise Inventory, January 1,2009............
Purchases
Less: Purchases returns and allowances ......... Rp9,100
Purchase discounts ................................ 2,525
Net purchases ...................................................
Add transportation in..........................................
Cost of merchandise purchased ..................
Merchandise available for sale ..........................
Less merchandise inventory, December 31, 2009
Cost of merchandise sold ..................................
Rp 59,700
Rp521,980
11,625
Rp510,355
17,400
527,755
Rp587,455
62,150
Rp525,305
24
25
Single-Step Income Statement
6-2
An alternative form of income
statement is the single-step
income statement. As shown in
the next slide, the income
statement for SolusiNet deducts
the total of all expenses in one
step from the total of all
revenues.
25
26
6-2
Exhibit 3: Single-Step Income Statement
SolusiNet
Income Statement
For the Year Ended December 31, 2009 (in Rp000)
Revenues:
Net sales
Rent revenue
Total revenues
Expenses:
Cost of merchandise sold
Selling expenses
Administrative expenses
Interest expense
Total expenses
Net income
Rp708,255
600
Rp708,855
Rp525,305
70,820
34,890
2,440
633,455
Rp 75,400
26
26
27
6-2
Exhibit 4: Statement of Owner’s Equity
SolusiNet
Statement of Owner’s Equity
For the Year Ended December 31, 2009 (in Rp000)
Chris Clark, capital, 1/1/09
Net income for year
Less withdrawals
Increase in owner’s equity
Chris Clark, capital, 12/31/09
Rp153,800
Rp75,400
18,000
57,400
Rp211,200
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27
28
6-2
Exhibit 5: Report Form of Balance Sheet
SolusiNet
Balance Sheet
December 31, 2009 (in Rp000)
Assets
Current assets:
Cash
Accounts receivable
Merchandise inventory
Office supplies
Prepaid insurance
Total current assets
Rp52,950
91,080
62,150
480
2,650
(Continued)
Rp209,310
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28
29
Exhibit 5: Report Form of Balance Sheet
6-2
Property, plant, and equip.:
Land
Rp20,000
Store equipment
Rp27,100
Less accumulated
depreciation
5,700 21,400
Office equipment
Rp15,570
Less accumulated
depreciation
4,720 10,850
Total property, plant,
and equipment
52,250
Total assets
Rp261,560
(In Rp000)
(Continued)
29
29
30
Exhibit 5: Report Form of Balance Sheet
6-2
Liabilities
Current liabilities:
Accounts payable
Rp22,420
Note payable (current portion)
5,000
Salaries payable
1,140
Unearned rent
1,800
Total current liabilities
Rp 30,360
Long-term liabilities:
Note payable (final pmt. due 2017)
20,000
Total liabilities
Rp 50,360
Owner’s Equity
Cinta Cita, capital
211,200
Total liabilities and owner’s equity
Rp261,560
(Concluded)
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30
31
6-2
Example Exercise 6-2
Based upon the following data, determine the cost of
merchandise sold for May. Use the format seen in
Exhibit 2.
Merchandise Inventory, May 1
Merchandise Inventory, May 31
Purchases
Purchases Returns and Allowances
Purchases Discounts
Transportation In
Rp121,200,000
142,000,000
985,000,000
23,500,000
21,000,000
11,300,000
31
31
32
6-2
Follow My Example 6-2
Merchandise Inventory, May 1
Purchases
Less: Purchases returns and allowances
Purchases discounts
Net purchases
Add transportation in
Cost of merchandise purchased
Merchandise available for sale
Less merchandise inventory, May 31
Cost of merchandise sold
Rp 121,200
Rp985,000
Rp23,500
21,000
For Practice: PE 6-2A, PE 6-2B
44,500
Rp940,500
11,300
951,800
Rp1,073,000
142,000
Rp 931,000
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32
33
6-3
Objective 3
Describe and illustrate the accounting
for merchandise transactions including:
sale of merchandise; purchase of
merchandise; transportation costs, sales
taxes, trade discounts; dual nature of
merchandise transactions.
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34
6-3
Cash Sales
JOURNAL
Date
Jan 2009
Description
Post
Ref
3 Cash
Sales
To record cash sales
Debit
Credit
1 800 000
1 800 000
On January 3, SolusiNet sold
Rp1,800,000 of merchandise for cash.
@solusinet
34
35
6-3
Cash Sales (continued)
Jan
3 Cost of Merchandise Sold
Merchandise Inventory
To record the cost of merch. sold
1 200 000
1 200 000
Using a perpetual inventory, the
Rp1,200,000 cost of the inventory must be
recorded.
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36
6-3
Credit Card Sales
Jan
3 Credit Card Expense
Cash
To record service charges on credit
card sales for the month
48 000
48 000
At the end of the month, Rp48,000
was sent to pay the service charge on
credit card sales.
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36
37
6-3
Sales on Account Using a Perpetual
Inventory
Jan. 12 Accounts Receivable—CV Agung Surya
Sales
510 000
510 000
Invoice No. 7172
12 Cost of Merchandise Sold
Merchandise Inventory
Cost of merchandise sold on
Invoice No. 7172.
280 000
280 000
On January 12, SolusiNet sold CV Agung Surya
merchandise on account, Rp510,000. The cost of
37
37
the merchandise to the seller was Rp280,000.
38
Sales Discounts
6-3
The terms for when payments for
merchandise are to be made, agreed
on by the buyer and the seller, are
called credit terms. If buyer is
allowed an amount of time to pay, it
is known as the credit period.
38
39
6-3
Credit Terms
If invoice is
paid within
10 days of
invoice date
Rp1,470,000 paid
(Rp1,500,000 less a
2% discount)
Invoice for
Rp1,500,000
Terms:
2/10, n/30
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39
40
6-3
Invoice for
Rp1,500,000
Terms:
2/10, n/30
If invoice is
NOT paid
within 10
days of
invoice date
Full amount
(Rp1,500,000) is due
within 30 days of
invoice date
40
40
41
6-3
Sales Discounts
Jan. 22 Cash
Sales Discounts
1 470 000
30 000
Accounts Receivable–Omega Tech.
Collection of Invoice No.
106-8, less 2% discount.
1 500 000
On January 22, SolusiNet receives the
amount due, less the 2 percent discount.
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41
42
6-3
Jan. 13 Sales Returns and Allowances
Accounts Receivable-PT Krisna
225 000
225 000
Credit Memo No. 32
13 Merchandise Inventory
140 000
Cost of Goods Sold
Cost of merchandise returned.
Credit Memo No. 32.
On January 13, issued Credit Memo 32 to PT
Krisna for merchandise returned to SolusiNet.
Selling price, Rp225,000; cost to SolusiNet,
Rp140,000.
140 000
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43
1-2
6-3
Example Exercise 6-3
Journalize the following merchandise transactions:
a. Sold merchandise on account, Rp7,500,000 with terms
of 2/10, n/30. The cost of the merchandise sold was
Rp5,625,000.
b. Received payment less the discount.
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43
44
6-3
Follow My Example 6-3
a.
b.
Accounts Receivable
Sales
Cost of Merchandise Sold
Merchandise Inventory
7,500,000
Cash
Sales Discounts
Accounts Receivable
7,350,000
150,000
For Practice: PE 6-3A, PE 6-3B
7,500,000
5,625,000
5,625,000
7,500,000
44
44
45
6-3
Purchase Transactions (Perpetual
Inventory)
JOURNAL
Description
Jan. 3 Merchandise Inventory
Cash
Purchased inventory from
CV Budi.
Date
2009
PAGE 24
Post.
Ref.
Dr
Cr.
2 510 000
2 510 000
On January 3, SolusiNet purchased merchandise
for cash from Alden Company, Rp2,510,000.
45
45
46
6-3
Jan. 4 Merchandise Inventory
Accounts Payable—CV Thomas
Purchased inventory on
account.
9 250 000
9 250 000
On January 4, SolusiNet purchased
merchandise on account from CV Thomas,
Rp9,250,000.
46
46
47
Purchases Discounts
6-3
PT Alpha Technologies
issues an invoice for
Rp3,000,000 to SolusiNet
dated March 12, with terms
2/10, n/30.
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48
6-3
SolusiNet borrows cash at an annual interest rate
of 6%. Should the firm borrow cash to pay the
invoice within the discount period?
YES
Discount of 2% on Rp3,000,000
Interest for 20 days at the rate
of 6% on Rp2,940,000
Savings from borrowing
Rp60,000
– 9,800
Rp50,200
48
49
6-3
Purchase Transactions (Perpetual
Inventory)
Mar. 12 Merchandise Inventory
3 000 000
Accounts Payable— PT Alpha Tech.
3 000 000
Purchased inventory on
account.
On March 12, SolusiNet purchased
merchandise on account from PT Alpha
Technologies, Rp3,000,000.
49
49
50
6-3
Mar. 22 Accounts Payable— PT Alpha Technol.
Cash
Merchandise Inventory
Paid PT Alpha Technologies
for March 12 purchase.
3 000 000
2 940 000
60 000
If payment is made by March 22, SolusiNet
records the discount as a reduction in cost. Notice
that Merchandise Inventory is credited because
NetSolutions maintains a perpetual inventory.
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50
51
6-3
Apr. 11 Accounts Payable— PT Alpha Technol.
Cash
Paid PT Alpha Technologies
for March 12 purchase.
3 000 000
3 000 000
If SolusiNet does not pay the invoice until
April 11, it would pay the full amount.
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Purchases Return
6-3
A purchases return involves actually
returning merchandise that is
damaged or does not meet the
specifications of the order.
52
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Purchases Allowance
6-3
When the defective or incorrect
merchandise is kept by the
buyer and the vendor makes a
price adjustment, this is a
purchases allowance.
53
54
6-3
@solusinet
SolusiNet receives the delivery
from PT Malang Komputer and
determines that Rp900,000 of the
items are not the merchandise
ordered. Debit memorandum #18
(also called a debit memo) is
issued to Maxim Systems.
54
55
6-3
Mar. 7 Accounts Payable—PT Malang Komp.
Merchandise Inventory
Debit Memo No. 18
900 000
900 000
On March 7, SolusiNet records the return
of the merchandise indicated in Debit
Memorandum No. 18.
55
55
56
6-3
On May 2, SolusiNet purchased
Rp5,000,000 of merchandise from Delta
Data Link, subject to terms 2/10, n/30.
May 2 Merchandise Inventory
Accounts Payable—Delta Data
Purchased merchandise.
5 000 000
5 000 000
56
56
57
6-3
On May 4, SolusiNet returns
Rp3,000,000 of the merchandise.
4 Accounts Payable—Delta Data Link
Merchandise Inventory
3 000 000
3 000 000
Returned portion of the
merchandise purchased.
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58
6-3
On May 12, SolusiNet pays the amount due,
Rp1,960,000 [Rp2,000,000 – (Rp5,000,000 –
Rp3,000,000) x 2%)].
12 Accounts Payable—Delta Data Links
Cash
Merchandise Inventory
2 000 000
1 960 000
40 000
Paid invoice [(Rp5,000,000 –
Rp3,000,000) x 2% = Rp40,000;
Rp2,000,000 – Rp40,000 =Rp1,960,000]
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6-3
Example Exercise 6-4
Ramli Company purchased merchandise on account from a
supplier for Rp11,500,000, terms 2/10, n/30. Rofles Company
returned Rp3,000,000 of the merchandise and received full
credit.
a. If Rofles Company pays the invoice within the
discount period, what is the amount of cash required
for the payment?
b.
Under a perpetual inventory system, what account is
credited by Rofles Company to record the return?
59
59
60
6-3
Follow My Example 6-4
a.
Rp8,330,000. Purchase of Rp11,500,000 less
the return of Rp3,000,000 less the discount of
Rp170,000 [(Rp11,500,000 – Rp3,000,000) x
2%].
b.
Merchandise Inventory.
For Practice: PE 6-4A, PE 6-4B
60
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61
Transportation Costs
6-3
If ownership of the merchandise
passes to the buyer when the seller
delivers the merchandise to the
freight carrier, it is said to be FOB
(free on board) shipping point.
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6-3
June 10 Merchandise Inventory
Accounts Payable—Magna Data
Purchased merchandise,
terms FOB shipping point.
10 Merchandise Inventory
Cash
Paid shipping cost .
900 000
900 000
50 000
50 000
On June 10, SolusiNet buys merchandise from Magna
Data on account, Rp900,000, terms FOB shipping
62
point and pays the transportation cost of Rp50,000.62
63
Transportation Costs
6-3
If ownership of the merchandise
passes to the buyer when the
buyer receives the merchandise,
the terms are said to be FOB
(free on board) destination.
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6-3
FOB Destination
@solusinet
On June 15, SolusiNet sells
merchandise to PT Kiki on account,
Rp700,000, terms FOB destination.
The cost of the merchandise sold is
Rp480,000.
64
65
6-3
June 15 Accounts Receivable—PT Kiki
Sales
Sold merchandise, terms
FOB destination.
15 Cost of Merchandise Sold
Merchandise Inventory
Record cost of merchandise
sold to PT Kiki
700 000
700 000
480 000
480 000
65
65
66
6-3
June 15 Delivery Expense
40 000
Cash
Paid shipping cost on
merchandise sold.
40 000
On June 15, SolusiNet pays the
transportation cost of Rp40,000.
66
66
67
FOB Shipping Point
6-3
On June 20, SolusiNet sells
merchandise to CV Permadi on
account, Rp800,000, terms FOB
shipping point. The cost of the
merchandise sold is Rp360,000.
67
68
6-3
June 20 Accounts Receivable—CV Permadi
Sales
Sold merchandise, terms
800 000
800 000
FOB shipping point.
20 Cost of Merchandise Sold
Merchandise Inventory
Record cost of merchandise
360 000
360 000
sold to CV Permadi
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6-3
June 20 Accounts Receivable—CV Permadi
Cash
Prepaid shipping cost on
merchandise sold.
45 000
45 000
SolusiNet pays the transportation cost
of Rp45,000 and adds it to the invoice.
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6-3
Example Exercise 6-5
Determine the amount to be paid in full settlement of each
of invoices (a) and (b), assuming that credit for returns and
allowances was received prior to payment and that all
invoices were paid within the discount period.
Transportation
Returns and
Merchandise Paid by Seller Transportation Terms Allowances
a. Rp4,500,000
Rp200,000
FOB shipping point, Rp800,000
1/10, n/30
b. Rp5,000,000
60,000
FOB destination,
Rp2,500,000
2/10, n/30
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6-3
Follow My Example 6-5
a.
Rp3,863,000. Purchase of Rp4,500,000 less
return of Rp800,000 less the discount of
Rp37,000 [(Rp4,500,000 – Rp800,000) x 1%]
plus Rp200,000 of shipping.
b.
Rp2,450,000. Purchase of Rp5,000,000 less
return of Rp2,500,000 less the discount of
Rp50,000 [(Rp5,000,000 – Rp2,500,000) x 2%].
For Practice: PE 6-5A, PE 6-5B
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6-3
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18
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6-3
Sales Taxes
Aug. 12 Accounts Receivable—CV Lemon
106 000
Sales
Sales Taxes Payable
Invoice No. 339
On August 12, merchandise is sold
on account to Lemon Company,
Rp100,000. The state has a 6% sales
tax.
100 000
6 000
73
73
18
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6-3
Sept. 15 Sales Tax Payable
Cash
Payment for sales taxes
collected during August.
2 900 000
2 900 000
On September 15, the seller sends in a
payment of Rp2,900,000 to the taxing unit
for the August taxes collected.
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18
75
Trade Discounts
6-3
When wholesalers offer special
discounts to certain classes of buyers
that order large quantities, these
discounts are called trade discounts.
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Dual Nature of Merchandise
Transactions
6-3
Each merchandising transaction affects a buyer
and a seller. In the following illustrations, we
show how the same transactions would be
recorded by both the seller and the buyer.
July 1. CV Santi sold merchandise on account
to CV Budiman, Rp7,500,000, terms
FOB shipping point, n/45. The cost of
the merchandise sold was Rp4,500,000.
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6-3
CV Santi (Seller)
Accounts Receivable—CV Budiman
Sales
7,500,000
7,500,000
Cost of Merchandise Sold
Merchandise Inventory
4,500,000
4,500,000
CV Budiman (Buyer)
Merchandise Inventory.
Accounts Payable—CV Santi
7,500,000
7,500,000
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77
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6-3
July 2 CV Budiman paid transportation
charges of Rp150,000 on July 1
purchase from CV Santi.
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6-3
CV Santi (Seller)
No entry.
CV Budiman (Buyer)
Merchandise Inventory
Cash
150,000
150,000
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79
18
80
6-3
July 5 CV Santi sold merchandise on
account to CV Budiman,
Rp5,000,000, terms FOB
destination, n/30. The cost of the
merchandise sold was
Rp3,500,000.
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6-3
CV Santi (Seller)
Accounts Receivable—CV Budiman
Sales
5,000,000
5,000,000
Cost of Merchandise Sold
Merchandise Inventory
3,500,000
3,500,000
CV Budiman (Buyer)
Merchandise Inventory.
Accounts Payable—CV Santi
5,000,000
5,000,000
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82
6-3
July 7. CV Santi paid transportation
costs of Rp250,000 for delivery
of merchandise sold to CV
Budiman on July 5.
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6-3
CV Santi (Seller)
Delivery Expense
Cash
250,000
250,000
CV Budiman(Buyer)
No entry.
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18
84
6-3
July 13. CV Santi issued CV Budiman a
credit memorandum for
Rp1,000,000 of merchandise
returned from a July 5 purchase
on account. The cost of the
merchandise was Rp700,000.
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6-3
CV Santi (Seller)
Sales Returns and Allowances
1,000,000
Accounts Receivable—CV Budiman
1,000,000
Merchandise Inventory
Cost of Merchandise Sold
700,000
700,000
CV Budiman (Buyer)
Accounts Payable—CV Santi
Merchandise Inventory
1,000,000
1,000,000
85
85
18
86
6-3
July 15. CV Santi received payment
from CV Budiman for purchase
of July 5.
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6-3
CV Santi (Seller)
Cash
4,000,000
Accounts Receivable—CV Budiman
4,000,000
CV Budiman (Buyer)
Accounts Payable—CV Santi
Cash
4,000,000
4,000,000
87
87
18
88
6-3
July 18. CV Santi sold merchandise on
account to CV Budiman,
Rp12,000,000, terms FOB
shipping point, 2/10, n/eom.
Santi prepaid transportation costs
of Rp500,000, which were added
to the invoice. The cost of the
merchandise sold was
Rp7,200,000.
88
89
6-3
CV Santi (Seller)
Accounts Receivable—CV Budiman
Sales
Accounts Receivable—CV Budiman
Cash
Cost of Merchandise Sold
Merchandise Inventory
12,000,000
12,000,000
500,000
500,000
7,200,000
7,200,000
CV Budiman (Buyer)
Merchandise Inventory
Accounts Payable—CV Santi
12,500,000
12,500,000
89
89
18
90
6-3
July 28. CV Santi received payment from CV
Budiman for purchase of July 18,
less discount (2% x Rp12,000,000).
90
91
6-3
CV Santi (Seller)
Cash
12,260,000
Sales Discounts
240,000
Accounts Receivable—CV Budiman
12,500,000
CV Budiman (Buyer)
Accounts Payable—CV Santi
Merchandise Inventory
Cash
12,500,000
240,000
12,260,000
91
91
18
92
6-3
1-2
Example Exercise 6-6
Santi Co. sold merchandise to Butet Co. on account,
Rp11,500,000, terms 2/15, n/30. The cost of the
merchandise sold is Rp6,900,000. Santi Co. issued a credit
memorandum for Rp900,000 for merchandise returned and
later received the amount due within the discount period.
The cost of the merchandise returned was Rp540,000.
Journalize Santi Co.’s and Butet Co.’s entries for the receipt
of the check for the amount due from Butet Co.
92
92
93
6-3
Follow My Example 6-6
Santi Company Journal Entries:
Cash (Rp11,500,000 – Rp900,000 – Rp212,000)
10,388,000
Sales Discounts [(Rp11,500,000 – Rp900,000) x 2%]
212,000
Accounts Receivable—Butet Co.
(Rp11,500,000 – Rp900,000)
10,600,000
Butet Company Journal Entries:
Accounts Payable—Santi Co.
(Rp11,500,000 –Rp900,000)
Merchandise Inventory [(Rp11,500,000 –
Rp900,000)x 2%]
Cash (Rp11,500,000 – Rp900,000
– Rp212,000)
10,600,000
212,000
10,388,000
93
93
For Practice: PE 6-6A, PE 6-6B
94
6-4
Objective 4
Describe the adjusting and
closing process for a
merchandising business.
94
95
Inventory Shrinkage
6-4
Merchandising businesses may experience
some loss of inventory due to shoplifting,
employee theft, or errors in recording or
counting inventory. If the balance of the
Merchandise Inventory account is larger than
the total amount of merchandise count, the
difference is often called inventory shrinkage
or inventory shortage.
95
96
6-4
@solusinet
SolusiNet inventory records
indicate that Rp63,950,000 of
merchandise should be
available for sale on December
31, 2009. The physical count
reveals that only Rp62,150,000
is actually available.
96
97
6-4
Adjusting Entry
Dec. 31 Cost of Merchandise Sold
Merchandise Inventory
Inventory shrinkage
(Rp63,950,000 – Rp62,150,000).
Inventory records
Inventory count
Inventory shortage
1 800 000
1 800 000
Rp63,950,000
62,150,000
Rp 1,800,000
97
97
18
98
6-4
Step 1: Closing Entries
Close the temporary accounts with credit
balances to Income Summary.
Date
Item
Closing Entries
2009
Dec. 31 Sales
Rent Revenue
Income Summary
PR
Debit
Credit
410 720 185 000
610
600 000
312
720 785 000
98
98
99
Step 2: Closing Entries
6-4
Close the temporary accounts
with debit balances to
Income Summary.
99
99
100
Step 2: Closing Entries
31 Income Summary
Sales Returns and Allow.
Sales Discounts
Cost of Merchandise Sold
Sales Salaries Expense
Advertising Expense
Depr. Exp.—Store Equip.
Delivery Expense
Misc. Selling Expense
Office Salaries Expense
Rent Expense
Depr. Exp.—Office Equip.
Insurance Expense
Office Supplies Expense
Misc. Administrative Exp.
Interest Expense
6-4
312 645 385 000
411
6 140 000
412
5 790 000
510
525 305 000
520
53 430 000
521
10 860 000
522
3 100 000
523
2 800 000
529
630 000
530
21 020 000
531
8 100 000
532
2 490 000
533
1 910 000
534
610 000
539
760 000
710
2 440 000
100
100
101
6-4
Step 3: Closing Entries
Close Income Summary (the balance represents
a Rp75,400,000 profit for SolusiNet in 2009) to
Cinta Cita, Capital.
31 Income Summary
Cinta Cita, Capital
312
310
75 400 000
75 400 000
101
101
102
6-4
Step 4: Closing Entries
Close Cinta Cita, Drawing to Cinta Cita,
Capital.
31 Cinta Cita, Capital
Cinta Cita, Drawing
310
311
18 000 000
18 000 000
102
102
103
6-4
1-2
Example Exercise 6-7
Parulian Company’s perpetual inventory records indicate that
Rp382,800,000 of merchandise should be on hand on March
31, 2008. The physical inventory indicates that Rp371,250,000
of merchandise is actually on hand. Journalize the adjusting
entry for the inventory shrinkage for Parulian Company for the
year ended March 31, 2008.
Follow My Example 6-7
Mar. 31 Cost of Merchandise Sold
(Rp382,800,000 –(Rp371,250,000)
Merchandise Inventory
For Practice: PE 6-7A, PE 6-7B
11,550,000
11,550,000
103
103
104
6-4
Financial Analysis
The ratio of net sales to assets
measures how effectively a business is
using its assets to generate sales.
Ratio of Net
Sales to Assets =
Net sales
Average total assets
104
105
6-4
Ratio of Net Sales to Assets
PT Hero
Supermarket
PT Matahari
Prima Putra
Rp5,147,229
Rp9,768,075
Beginning of year
1,615,240
6,048,441
End of year
1,753,298
8,403,470
Average Total asset
1,684,269
7,225,956
3.06
1.35
Total revenues (net sales)
Total assets:
Ratio of net sales to assets
105
106
Interpretation
6-4
Based on these ratios, Sears
appears better than J. C.
Penney in utilizing its assets to
generate sales.
106