Merchandising Accounting: A Comprehensive Review Guide

Core Concepts and Financial Reporting

Accounting serves as the formal information system used to measure, process, and communicate financial information about an economic entity.

Annual Financial Statements

Complete financial reporting requires five primary financial statements prepared at the end of each accounting period:

1. Statement of Profit and Loss (Income Statement): Details revenues, expenses, gains, and losses to show financial performance over a period.

2. Balance Sheet (Statement of Financial Position): Reports assets, liabilities, and owner's equity at a specific point in time.

3. Cash Flow Statement: Shows the inflows and outflows of cash categorized into operating, investing, and financing activities.

4. Statement of Changes in Equity: Summarizes changes in owner's capital over the period, including net income, investments, and drawings.

5. Notes to Financial Statements: Provides textual descriptions, accounting policies, and detailed breakdowns of financial statement line items.

The 10-Step Accounting Cycle

The accounting cycle is a sequential process executed during each reporting period:

1. Analyze Business Transactions: Evaluate source documents to determine financial impact.

2. Journalize Transactions: Log transactions sequentially in original books of entry.

3. Post to Ledger Accounts: Transfer journal entries to general ledger accounts to summarize balances.

4. Prepare an Unadjusted Trial Balance: Verify the equality of total debits and credits across all accounts.

5. Journalize and Post Adjusting Entries: Record period-end adjustments for accruals, prepayments, depreciation, and bad debts.

6. Prepare an Adjusted Trial Balance (or Worksheet): Confirm debit-credit equality after adjustments.

7. Prepare Financial Statements: Construct the Income Statement, Owner's Equity Statement, Balance Sheet, and Cash Flow Statement.

8. Journalize and Post Closing Entries: Zero out temporary accounts (revenues, expenses, dividends/drawings) to Capital.

9. Prepare a Post-Closing Trial Balance: Ensure only real/permanent accounts retain balances for the new period.

10. Reversing Entries (Optional): Reverse specific period-end adjusting entries on the first day of the new period for processing efficiency.

Mechanics of Double-Entry Accounting

Double-entry accounting operates on the principle that every transaction impacts at least two accounts, maintaining equilibrium in the accounting equation:

$\text{Assets} = \text{Liabilities} + \text{Equity}$

Rules of Debits and Credits

• Debit: Left side of a T-account representing value received.

• Credit: Right side of a T-account representing value parted with.

Account Groupings

1. AWE Grouping (Assets, Withdrawals/Dividends, Expenses):

   • Normal Balance: Debit

   • Debit to Increase (+)

   • Credit to Decrease (-)

2. LRC Grouping (Liabilities, Revenues, Capital):

   • Normal Balance: Credit

   • Credit to Increase (+)

   • Debit to Decrease (-)

Equation Dynamics

• Both Sides Affected: When a transaction impacts both sides of the accounting equation, the adjustments move in the same direction (e.g., both sides increase or both sides decrease).

• One Side Affected: When a transaction impacts only one side of the accounting equation, the adjustments move in opposite directions (e.g., one asset increases while another asset decreases).

Books of Accounts and Merchandising Transactions

Classification of Journals

• General Journal: The master book of original entry where all transactions can be logged chronologically.

• Special Journals: Designed to systematically handle repetitive transactions of a similar nature.

Types of Special Journals

1. Cash Receipts Journal: Records all transactions resulting in cash inflows (Debit to Cash).

2. Cash Payments Journal: Records all transactions requiring cash outflows (Credit to Cash).

3. Purchase Journal: Records purchases of merchandise made exclusively on account.

4. Sales Journal: Records sales of merchandise made exclusively on account.

Major Groupings of Merchandising Transactions

• Buy Transactions: Purchases, Purchase Discounts, Purchase Returns, Purchase Allowances, Freight-In.

• Sale Transactions: Sales, Sales Discounts, Sales Returns, Sales Allowances, Freight-Out.

• Neither Buy nor Sale: Standard administrative/service transactions (e.g., capital contributions, cash expenses, bank loans).

Comprehensive Case Study: Wakanda Forever Grocery

Steps 1 & 2: Analysis and Journalizing (March 2024)

Transaction Entries

1. Initial Investment: Black Panther invests Cash $\text{P}500,000$, Merchandise Inventory $\text{P}500,000$, and Delivery Vehicle $\text{P}500,000$.

   • Debit: Cash $\text{P}500,000$

   • Debit: Merchandise Inventory $\text{P}500,000$

   • Debit: Delivery Vehicle $\text{P}500,000$

   • Credit: Black Panther, Capital $\text{P}1,500,000$

2. Rent Expense: Paid shop rental $\text{P}15,000$ using the expense method.

   • Debit: Rent Expense $\text{P}15,000$

   • Credit: Cash $\text{P}15,000$

3. Supplies Purchase: Purchased supplies on account $\text{P}25,000$ using the asset method.

   • Debit: Supplies Inventory $\text{P}25,000$

   • Credit: Accounts Payable $\text{P}25,000$

4. Furniture & Fixtures: Purchased furniture and fixtures on account \text{P}100,000$.\n - Debit: Furniture and Fixtures \text{P}100,000\n - Credit: Accounts Payable \text{P}100,000\n\n5. **Promissory Note Sale:** Sold merchandise to Customer X on account for \text{P}150,000 against a promissory note.\n - Debit: Notes Receivable \text{P}150,000\n - Credit: Sales \text{P}150,000\n\n6. **Merchandise Purchase:** Purchased merchandise from Nestle on account \text{P}200,000$.

   • Debit: Purchases $\text{P}200,000$

   • Credit: Accounts Payable $\text{P}200,000$

5. Merchandise Sales: Sold merchandise to various customers on account \text{P}300,000$.\n - Debit: Accounts Receivable \text{P}300,000\n - Credit: Sales \text{P}300,000\n\n8. **Account Settlement:** Paid 50\%$of the Nestle account ($\text{P}100,000).\n - Debit: Accounts Payable \text{P}100,000\n - Credit: Cash \text{P}100,000\n\n9. **Customer Collection:** Collected \text{P}200,000 from credit customers.\n - Debit: Cash \text{P}200,000\n - Credit: Accounts Receivable \text{P}200,000\n\n10. **Bank Loan:** Received proceeds of PNB loan \text{P}1,000,000$.

   • Debit: Cash $\text{P}1,000,000$

   • Credit: Bank Loan Payable $\text{P}1,000,000$

6. Utilities Payment: Paid light and water bill \text{P}5,000$.\n - Debit: Utilities Expense \text{P}5,000\n - Credit: Cash \text{P}5,000\n\n12. **Customer Advance:** Received \text{P}100,000 cash advance for future delivery.\n - Debit: Cash \text{P}100,000\n - Credit: Advances from Customers \text{P}100,000\n\n13. **Supplier Advance:** Paid \text{P}200,000 advance to P&G for future delivery.\n - Debit: Advances to Suppliers \text{P}200,000\n - Credit: Cash \text{P}200,000\n\n14. **Thor Purchase (FOB Shipping Point, Freight Collect):** Purchased goods \text{P}500,000$gross. Trade discounts:$10\%$,$5\%$. Cash terms:$2/10, 1/15, n/30$. Freight cost$\text{P}5,000$.

   • Invoice Price Calculation: $500,000 \times (1 - 0.10) \times (1 - 0.05) = 500,000 \times 0.90 \times 0.95 = \text{P}427,500$

   • Purchase Entry:

     • Debit: Purchases $\text{P}427,500$

     • Credit: Accounts Payable $\text{P}427,500$

   • Freight Entry:

     • Debit: Freight In $\text{P}5,000$

     • Credit: Cash $\text{P}5,000$

7. Wakanda Sari Sari Sale (FOB Destination, Freight Prepaid): Sold goods $\text{P}100,000$ gross. Trade discounts: $10\%$, $5\%$. Terms: $2/10, 1/15, n/30$. Freight cost \text{P}1,000$.\n - Invoice Price Calculation: 100,000 \times 0.90 \times 0.95 = \text{P}85,500\n - Sales Entry:\n - Debit: Accounts Receivable \text{P}85,500\n - Credit: Sales \text{P}85,500\n - Freight Entry:\n - Debit: Freight Out \text{P}1,000\n - Credit: Cash \text{P}1,000\n\n16. **Loan Repayment & Expense:** Paid \text{P}500,000$loan principal plus$\text{P}5,000 interest.\n - Debit: Bank Loan Payable \text{P}500,000\n - Debit: Interest Expense \text{P}5,000\n - Credit: Cash \text{P}505,000\n\n17. **Utilities Accrual:** Received GLOBE bill \text{P}5,000$.

   • Debit: Utilities Expense $\text{P}5,000$

   • Credit: Utilities Payable $\text{P}5,000$

8. Salaries Expense: Paid employee salaries \text{P}30,000$.\n - Debit: Salaries and Wages Expense \text{P}30,000\n - Credit: Cash \text{P}30,000\n\n19. **Owner Withdrawal:** Withdrew \text{P}10,000$cash and$\text{P}20,000 inventory for personal use.\n - Debit: Black Panther, Drawings \text{P}30,000\n - Credit: Merchandise Inventory/Purchases \text{P}20,000\n - Credit: Cash \text{P}10,000\n\n20. **Defective Goods Exchange:** Merchandise returned to supplier and damaged goods received from customers with direct replacements made.\n - **No Journal Entry Required** (Inventory balances remain unchanged).\n\n21. **Partial Deliveries:** Delivered 50\%$of goods ordered by customer ($\text{P}50,000$); received$50\% of goods ordered from P&G (\text{P}100,000).\n - Debit: Advances from Customers \text{P}50,000\n - Credit: Sales \text{P}50,000\n - Debit: Purchases \text{P}100,000\n - Credit: Advances to Suppliers \text{P}100,000\n\n22. **Early Payment to Thor (Within 10 Days):** Settled \text{P}427,500$invoice under$2/10 discount terms.\n - Discount Calculation: 427,500 \times 0.02 = \text{P}8,550\n - Cash Paid: 427,500 - 8,550 = \text{P}418,950\n - Debit: Accounts Payable \text{P}427,500\n - Credit: Cash \text{P}418,950\n - Credit: Purchase Discount \text{P}8,550\n\n23. **Early Collection from Customer (Within 5 Days):** Collected Wakanda Sari Sari account (\text{P}85,500$) under$2/10 discount terms.\n - Discount Calculation: 85,500 \times 0.02 = \text{P}1,710\n - Cash Collected: 85,500 - 1,710 = \text{P}83,790\n - Debit: Cash \text{P}83,790\n - Debit: Sales Discount \text{P}1,710\n - Credit: Accounts Receivable \text{P}85,500\n\n24. **Returns Without Replacement:** Returned \text{P}5,000$defective goods to supplier; accepted$\text{P}10,000 customer returns for cash refund.\n - Debit: Accounts Payable \text{P}5,000\n - Credit: Purchase Returns and Allowances \text{P}5,000\n - Debit: Sales Returns and Allowances \text{P}10,000\n - Credit: Cash \text{P}10,000\n\n25. **Combined Sales & Purchases:**\n - Cash Sales \text{P}250,000$, Credit Sales$\text{P}150,000\n - Debit: Cash \text{P}250,000\n - Debit: Accounts Receivable \text{P}150,000\n - Credit: Sales \text{P}400,000\n - Cash Purchases \text{P}250,000$, Credit Purchases$\text{P}150,000\n - Debit: Purchases \text{P}400,000\n - Credit: Cash \text{P}250,000\n - Credit: Accounts Payable \text{P}150,000\n\n26. **Thor Second Purchase (FOB Shipping Point, Freight Prepaid):** Purchased goods \text{P}500,000$gross ($\text{P}427,500$net) plus$\text{P}5,000 freight prepaid by seller.\n - Debit: Purchases \text{P}427,500\n - Debit: Freight In \text{P}5,000\n - Credit: Accounts Payable \text{P}432,500\n\n27. **Wakanda Sari Sari Second Sale (FOB Destination, Freight Collect):** Sold goods \text{P}100,000$gross ($\text{P}85,500$net); buyer paid$\text{P}1,000 freight collect.\n - Debit: Accounts Receivable \text{P}85,500\n - Debit: Freight Out \text{P}1,000\n - Credit: Sales \text{P}85,500\n - Credit: Accounts Receivable \text{P}1,000\n\n28. **Notes Receivable Collection:** Collected 1/3$of Customer X note ($\text{P}50,000$) plus$\text{P}1,000 interest.\n - Debit: Cash \text{P}51,000\n - Credit: Notes Receivable \text{P}50,000\n - Credit: Interest Income \text{P}1,000\n\n29. **Additional Investment:** Owner invested additional Cash \text{P}100,000$and Supplies$\text{P}25,000$.

   • Debit: Cash $\text{P}100,000$

   • Debit: Supplies Inventory $\text{P}25,000$

   • Credit: Black Panther, Capital $\text{P}125,000$

Step 3: Ledger Accounts (T-Account Summary)

Step 4: Unadjusted Trial Balance

Wakanda Forever Grocery
Unadjusted Trial Balance
March 31, 2024

Step 5: Adjusting Entries

Adjusting entries align revenue and expense recognition with the accrual accounting framework and matching principle. Every adjusting entry impacts one real account (balance sheet) and one nominal account (income statement).

Adjusting Entries Data and Calculations

1. Prepaid Rent: Rent paid covers March, April, and May ($\text{P}15,000 / 3 = \text{P}5,000/\text{month}$). Unearned portion is $\text{P}10,000$

   • Debit: Prepaid Rent $\text{P}10,000$

   • Credit: Rent Expense $\text{P}10,000$

2. Supplies Used: $2/5$ of supplies remain ($\text{P}50,000 \times 2/5 = \text{P}20,000$ on hand). Used portion = $\text{P}30,000$

   • Debit: Supplies Expense $\text{P}30,000$

   • Credit: Supplies Inventory $\text{P}30,000$

3. Accrued Salaries: 3 assistants worked 3 overtime hours at $\text{P}500/\text{hour}$ ($3 \times 3 \times 500 = \text{P}4,500$

   • Debit: Salaries and Wages $\text{P}4,500$

   • Credit: Accrued Salaries and Wages $\text{P}4,500$

4. Ending Inventory Physical Count: Physical count indicates $\text{P}1,200,000$ merchandise inventory on hand at March 31.

5. Doubtful Accounts: Estimated doubtful accounts receivable = $\text{P}5,000$

   • Debit: Doubtful Accounts $\text{P}5,000$

   • Credit: Allowance for Doubtful Accounts $\text{P}5,000$

6. Depreciation Expense:

   • Delivery Equipment: Useful life 10 years (120 months), Salvage Value $\text{P}20,000$      $\text{Monthly Depreciation} = \frac{500,000 - 20,000}{120} = \text{P}4,000$

   • Furniture & Fixtures: Useful life 100 months, Salvage Value $\text{P}0$      $\text{Monthly Depreciation} = \frac{100,000}{100} = \text{P}1,000$

   • Entries:

     • Debit: Depreciation Expense $\text{P}4,000$

     • Credit: Accumulated Depreciation - Delivery Equipment $\text{P}4,000$

     • Debit: Depreciation Expense $\text{P}1,000$

     • Credit: Accumulated Depreciation - Furniture & Fixtures $\text{P}1,000$

7. Unrecorded Sale to Auditor: Auditors took $\text{P}5,000$ merchandise on credit on March 31.

   • Debit: Accounts Receivable $\text{P}5,000$

   • Credit: Sales $\text{P}5,000$

8. Customer Advance Earned: $50\%$ of remaining customer advances ($\text{P}50,000 \times 50\% = \text{P}25,000$) was delivered.

   • Debit: Advances from Customers $\text{P}25,000$

   • Credit: Sales $\text{P}25,000$

9. Customer Deposit Adjustment: $\text{P}50,000$ deposit for April delivery was incorrectly credited to Sales.

   • Debit: Sales $\text{P}50,000$

   • Credit: Advances from Customers $\text{P}50,000$

Step 6: Adjusted Trial Balance

Wakanda Forever Grocery
Adjusted Trial Balance
March 31, 2024

Step 7: Preparation of Financial Statements

Income Statement

Wakanda Forever Grocery
Income Statement
For the Month Ended March 31, 2024

• Sales Revenue:

  • Gross Sales: $\text{P}1,051,000$

  • Less: Sales Discount ($\text{P}1,710$)

  • Less: Sales Returns and Allowances ($\text{P}10,000$)

  • Net Sales: $\text{P}1,039,290$

• Cost of Goods Sold:

  • Merchandise Inventory, Beginning: $\text{P}480,000$

  • Purchases: $\text{P}1,555,000$

  • Less: Purchase Discount ($\text{P}8,550$)

  • Less: Purchase Returns and Allowances ($\text{P}5,000$)

  • Net Purchases: $\text{P}1,541,450$

  • Add: Freight In: $\text{P}10,000$

  • Net Cost of Goods Purchased: $\text{P}1,551,450$

  • Total Goods Available for Sale: $\text{P}2,031,450$

  • Less: Merchandise Inventory, Ending: $\text{P}1,200,000$

  • Cost of Sales: $\text{P}831,450$

• Gross Profit: $\text{P}207,840$

• Operating Expenses:

  • Selling/Marketing Expenses:

  • Freight Out: $\text{P}2,000$

  • Rent Expense: $\text{P}5,000$

  • Utilities Expense: $\text{P}10,000$

  • Salaries and Wages Expense: $\text{P}34,500$

  • Depreciation Expense: $\text{P}5,000$

  • Supplies Expense: $\text{P}30,000$

  • Total Selling Expenses: $\text{P}86,500$

  • General/Administrative Expenses:

  • Doubtful Accounts: $\text{P}5,000$

  • Total Operating Expenses: $\text{P}91,500$

• Operating Income: $\text{P}116,340$

• Other Income / (Expenses):

  • Interest Income: $\text{P}1,000$

  • Less: Interest Expense: ($\text{P}5,000$)

  • Net Other Expenses: ($\text{P}4,000$)

• NET INCOME: $\text{P}112,340$

Statement of Owner's Equity

Wakanda Forever Grocery
Statement of Owner's Equity
For the Month Ended March 31, 2024

• Black Panther, Capital (Beginning): $\text{P}1,625,000$

• Add: Net Income for the Period: $\text{P}112,340$

• Total: $\text{P}1,737,340$

• Less: Black Panther, Drawings: ($\text{P}30,000$)

• Black Panther, Capital (Ending): $\text{P}1,707,340$

Balance Sheet

Wakanda Forever Grocery
Balance Sheet
As of March 31, 2024

Assets

• Current Assets:

  • Cash: $\text{P}734,840$

  • Notes Receivable: $\text{P}100,000$

  • Accounts Receivable: $\text{P}339,500$

  • Less: Allowance for Doubtful Accounts: ($\text{P}5,000$) = $\text{P}334,500$

  • Advances to Suppliers: $\text{P}100,000$

  • Merchandise Inventory: $\text{P}1,200,000$

  • Supplies Inventory: $\text{P}20,000$

  • Prepaid Rent: $\text{P}10,000$

  • Total Current Assets: $\text{P}2,499,340$

• Non-Current Assets:

  • Delivery Equipment: $\text{P}500,000$

  • Less: Accumulated Depreciation - Delivery Equip.: ($\text{P}4,000$) = $\text{P}496,000$

  • Furniture and Fixtures: $\text{P}100,000$

  • Less: Accumulated Depreciation - Furniture & Fixt.: ($\text{P}1,000$) = $\text{P}99,000$

  • Total Non-Current Assets: $\text{P}595,000$

• TOTAL ASSETS: $\text{P}3,094,340$

Liabilities and Owner's Equity

• Current Liabilities:

  • Accounts Payable: $\text{P}802,500$

  • Advances from Customers: $\text{P}75,000$

  • Accrued Salaries and Wages: $\text{P}4,500$

  • Utilities Payable: $\text{P}5,000$

  • Total Current Liabilities: $\text{P}887,000$

• Non-Current Liabilities:

  • Bank Loan Payable: $\text{P}500,000$

  • Total Liabilities: $\text{P}1,387,000$

• Owner's Equity:

  • Black Panther, Capital: $\text{P}1,707,340$

• TOTAL LIABILITIES AND OWNER'S EQUITY: $\text{P}3,094,340$

Cash Flow Statement

Activity Classification Criteria

• Operating Activities: Main revenue-generating operations (Income Statement items, Current Assets, Current Liabilities).

• Investing Activities: Capital expenditure, purchase/sale of long-term assets, securities, or investments.

• Financing Activities: Long-term debt management and equity changes (loans, owner capital investments, drawings).

Statement of Cash Flows Analysis

Wakanda Forever Grocery
Cash Flow Statement
For the Month Ended March 31, 2024

• Cash Flows from Operating Activities:

  • Cash Inflows:

  • Collections from Accounts Receivable: $\text{P}283,790$

  • Cash Sales: $\text{P}250,000$

  • Collection of Notes Receivable: $\text{P}50,000$

  • Collection of Interest on Notes Receivable: $\text{P}1,000$

  • Advances Received from Customers: $\text{P}100,000$

  • Total Operating Inflows: $\text{P}684,790$

  • Cash Outflows:

  • Payment for Rent Expense: ($\text{P}15,000$)

  • Payment of Accounts Payable: ($\text{P}518,950$)

  • Payment for Utilities: ($\text{P}5,000$)

  • Advances Paid to Suppliers: ($\text{P}200,000$)

  • Payment for Freight In: ($\text{P}5,000$)

  • Payment for Freight Out: ($\text{P}1,000$)

  • Payment of Salaries and Wages: ($\text{P}30,000$)

  • Payment for Cash Purchases: ($\text{P}250,000$)

  • Cash Refunds for Sales Returns: ($\text{P}10,000$)

  • Total Operating Outflows: ($\text{P}1,034,950$)

  • Net Cash Used in Operating Activities: ($\text{P}350,160$)

• Cash Flows from Investing Activities:

  • Net Cash Provided by / (Used in) Investing Activities: $\text{P}0$

• Cash Flows from Financing Activities:

  • Cash Inflows:

  • Owner Capital Investments: $\text{P}600,000$

  • Bank Loan Proceeds: $\text{P}1,000,000$

  • Total Financing Inflows: $\text{P}1,600,000$

  • Cash Outflows:

  • Repayment of Bank Loan Principal: ($\text{P}500,000$)

  • Payment of Bank Loan Interest: ($\text{P}5,000$)

  • Owner Cash Drawings: ($\text{P}10,000$)

  • Total Financing Outflows: ($\text{P}515,000$)

  • Net Cash Provided by Financing Activities: $\text{P}1,085,000$

• Net Increase in Cash: $\text{P}734,840$

• Cash Balance, Beginning: $\text{P}0$

• Cash Balance, Ending: $\text{P}734,840$

Step 8: Closing Entries

Closing entries reset temporary accounts to zero and update the owner's capital account balance.

1. Close Temporary Credit Balances (Revenues & Contra-Purchases):

   • Debit: Sales $\text{P}1,051,000$

   • Debit: Interest Income $\text{P}1,000$

   • Debit: Purchase Discount $\text{P}8,550$

   • Debit: Purchase Returns and Allowances $\text{P}5,000$

   • Credit: Income and Expense Summary $\text{P}1,065,550$

2. Close Temporary Debit Balances (Expenses, Purchases, & Contra-Sales):

   • Debit: Income and Expense Summary $\text{P}1,673,210$

   • Credit: Sales Discount $\text{P}1,710$

   • Credit: Sales Returns and Allowances $\text{P}10,000$

   • Credit: Purchases $\text{P}1,555,000$

   • Credit: Freight In $\text{P}10,000$

   • Credit: Freight Out $\text{P}2,000$

   • Credit: Rent Expense $\text{P}5,000$

   • Credit: Utilities Expense $\text{P}10,000$

   • Credit: Salaries and Wages $\text{P}34,500$

   • Credit: Interest Expense $\text{P}5,000$

   • Credit: Doubtful Accounts $\text{P}5,000$

   • Credit: Depreciation Expense $\text{P}5,000$

   • Credit: Supplies Expense $\text{P}30,000$

3. Close Merchandise Inventory Balances:

   • Close Beginning Inventory:

     • Debit: Income and Expense Summary $\text{P}480,000$

     • Credit: Merchandise Inventory $\text{P}480,000$

   • Record Ending Inventory:

     • Debit: Merchandise Inventory $\text{P}1,200,000$

     • Credit: Income and Expense Summary $\text{P}1,200,000$

4. Close Income Summary to Capital (Net Income Transfer):

   • Income Summary Balance = $1,065,550 + 1,200,000 - 1,673,210 - 480,000 = \text{P}112,340$ Credit.

   • Debit: Income and Expense Summary $\text{P}112,340$

   • Credit: Black Panther, Capital $\text{P}112,340$

5. Close Owner's Drawings Account:

   • Debit: Black Panther, Capital $\text{P}30,000$

   • Credit: Black Panther, Drawings $\text{P}30,000$

Step 9: Post-Closing Trial Balance

Wakanda Forever Grocery
Post-Closing Trial Balance
March 31, 2024

Step 10: Reversing Entries Analysis

Reversing entries are performed on the first day of the subsequent period (April 1, 2024) to streamline transaction handling. Reversals apply strictly to:

• Accrued Revenues

• Accrued Expenses

• Prepayments initial expensed (Expense Method)

• Unearned Revenues initial credited (Revenue Method)

Note: Adjustments made under Asset/Liability methods, Depreciation, and Bad Debts are NEVER reversed.

Reversing Entries Table