5-1 Quiz (chapter 5) will occur on Thursday Oct 9 2 Unit 2: Chapter 5.

5-1

Quiz (chapter 5) will occur on Thursday Oct 9

2

Unit 2: Chapter 5

5-2

3

Freight TermsExhibit 11

5-3

On a regular basis, the seller pays to the taxing authority (CRA) the amount of the sales taxes collected.

Nov 30

HST Payable $2500

HST Recoverable $500

Bank $2000

Sending HST remittance to CRA

Sales Taxes3

5-4

Describe the adjusting and closing process for a merchandising business.

4

5-99

5-5

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 the merchandise count, the difference is often called inventory shrinkage or inventory shortage.

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5-6

NetSolutions’ inventory records indicate the following on December 31, 2011:

Dec. 31, 2011

Account balance of Merchandise Inventory $63,950Physical merchandise inventory on hand 62,150Inventory shrinkage $ 1,800

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5-7

At the end of the accounting period, inventory shrinkage is recorded by the following adjusting entry:

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5-8

Step 1: Closing Entries

Debit each temporary account with a credit balance, such as Sales, for its balance and credit Income Summary.

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5-9

Credit each temporary account with a debit balance, such as an expense, for the balance and credit Income Summary.

Step 2: Closing Entries4

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Debit Income Summary for the amount of its balance (net income) and credit Retained Earnings. (or Capital)

Step 3: Closing Entries4

5-11

Debit Retained Earnings for the balance of the Dividends account and credit the Dividends account.(same as Drawings account)

Step 4: Closing Entries4

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NetSolutions’ Income Summary account after the closing entries have been posted is as follows:

4

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2 Single-Step Income Statement

Exhibit 3

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2

Multiple-Step Income Statement (concluded)

Exhibit 1

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Income Statement of Merchandising Business

Sales $XXX

Cost of Merchandise Sold –XXX

Gross Profit $XXX

Operating Expenses –XXX

Net Income $XXX

Nature of Merchandising Businesses

1

5-16

When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold.

1Nature of Merchandising

Businesses

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Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory.

1

Nature of Merchandising Businesses

5-18

The multiple-step income statement contains several sections, subsections, and subtotals.

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Multiple-Step Income Statement

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2

Exhibit 1 Multiple-Step Income Statement

(continued on Slide 19)

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The Sales account provides the total amount charged to customers for merchandise sold, including cash sales and sales on account.

2

Multiple-Step Income Statement

5-21

Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise.

2Multiple-Step Income Statement

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Sales discounts are granted by the seller to customers for early payment of amounts owed.

2Multiple-Step Income Statement

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P260 E5-4, E5-5, E5-6, E5-7

2Classwork / Homework