4. Adjusting and Closing for Merchandisers

Beginning inventory plus the net cost of purchases is the merchandise available for sale. As inventory is sold, its cost is recorded in…

cost of goods sold on the income statement.

At the end of a period, what statement does the ending inventory go on?

The balance sheet.

A period's ending inventory is the next period's…

beginning inventory.

When should you make an adjusting entry for inventory shrinking?

Any loss of merchandise, including theft and deterioration.

A merchandiser using a perpetual inventory system makes an adjustment to what account for shrinkage?

Merchandise Inventory for any loss of merchandise, including theft and deterioration.

What is shrinkage?

the loss of inventory

How is shrinkage computed?

By comparing a physical count of inventory with recorded amounts.

If the Merchandise Inventory account balance at the end of the year is $21,250, but a physical count shows only $21,000 of inventory exists, what is the adjusting entry to record this shrinkage?

debit cost of goods sold and credit merchandise inventory for the loss amount

What are the temporary accounts that need to be closed at the end of a period that are unique to merchandisers for the perpetual system?

1. Sales (of goods, revenue)

2. Sales Discounts

3. Sales Returns and Allowances

4. Cost of Goods Sold

What is step 1 for closing for merchandisers?

Close credit balances such as the Sales account in temporary accounts to Income summary.

How do you close the sales account for step 1?

debit sales and credit income summary

What is step 2 for closing for merchandisers?

Close debit balances in temporary accounts to Income summary.

What are the temporary accounts that should be closed in step 2 that is unique to merchandisers?

Sales Discounts, Sales Returns and Allowances, Cost of Goods Sold.

What other temporary accounts need to be closed in step 2 that is not specific to merchandisers?

All other expense accounts.

How do you close accounts for step 2?

credit sales discounts, sales returns and allowances, cost of goods sold and all expense accounts and debit income summary

What is step 3 in closing?

Close Income Summary to Capital account.

How do we close Income Summary to Capital account?

Debit Income Summary and credit Capital account.

What is step 4 in closing?

Close withdrawals to Capital account.

How do you close withdrawals to Capital account?

Debit Capital and credit Withdrawals

Review Need-To-Know 5-4