1 Accounting for Merchandising Businesses 6 1 2

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 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, 000 the forcurrent land that had merchandise been priced forissale $150, 000. On Rp 250, 000 cash Repair and for. Service Rp 975, 000 onseller’s account. September 3, Gallatin accepted the The cost of the merchandise sold is Rp 735, 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 national chain. 6 -1 At what value should the land be recorded in Gallatin Repair Service’s records? The gross profit is Rp 490, 000 (Rp 250, 000 + Rp 975, 000 –Rp 735, 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 -1 A, PE 6 -1 B 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 Solusi. Net Income Statement For the Year Ended December 31, 2009 (in Rp 000) Revenue from sales: Sales Rp 720, 185 Less: Sales returns and allowances Sales discounts Net sales Rp 708, 255 Cost of merchandise sold 525, 305 Gross profit (Continued) Rp 182, 950 Rp 6, 140 5, 790 11, 930 18 18

19 (In Rp 000) Operating expenses: Selling expenses: Sales salaries expense Advertising expense Depr. Expense–store equipment Delivery Expense Miscellaneous selling expense Total selling expenses Administrative expenses: Office salaries expense Rent expense Depr. expense–office equipment Insurance expense Office supplies expense Misc. administrative expense Total admin. expenses Total operating expenses Income from operations (Continued) Rp 53, 430 10, 860 3, 100 2, 800 630 Rp 21, 020 8, 100 2, 490 1, 910 610 760 19 19

20 6 -2 (In Rp 000) Other income and expenses: Rent revenue Interest expense Net income (Concluded) Rp 600 (2, 440) (1, 840) Rp 75, 40 20 20

21 6 -2 Cost of merchandise sold was discussed earlier. It is the cost of the merchandise sold to customers. 21

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 Cost of Merchandise Sold 6 -2 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 Solusi. Net 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 Solusi. Net Income Statement For the Year Ended December 31, 2009 (in Rp 000) Revenues: Net sales Rp 708, 255 Rent revenue Total revenues Rp 708, 855 Expenses: Cost of merchandise sold Selling expenses Administrative expenses Interest expense Total expenses 633, 455 Net income 600 Rp 525, 305 70, 820 34, 890 2, 440 26 26 Rp 75, 400

27 6 -2 Exhibit 4: Statement of Owner’s Equity Solusi. Net Statement of Owner’s Equity For the Year Ended December 31, 2009 (in Rp 000) Chris Clark, capital, 1/1/09 Net income for year Less withdrawals Increase in owner’s equity Chris Clark, capital, 12/31/09 Rp 153, 800 Rp 75, 400 18, 000 57, 400 Rp 211, 200 27 27

28 Exhibit 5: Report Form of Balance Sheet 6 -2 Solusi. Net Balance Sheet December 31, 2009 (in Rp 000) Assets Current assets: Cash Rp 52, 950 Accounts receivable 91, 080 Merchandise inventory 62, 150 Office supplies 480 Prepaid insurance 2, 650 Total current assets. Rp 209, 310 (Continued) 28 28

29 6 -2 Exhibit 5: Report Form of Balance Sheet Property, plant, and equip. : Land Store equipment Rp 27, 100 Less accumulated depreciation 5, 700 Office equipment Rp 15, 570 Less accumulated depreciation 4, 720 Total property, plant, and equipment 52, 250 Total assets Rp 261, 560 (Continued) (In Rp 000) Rp 20, 000 21, 400 10, 850 29 29

30 Exhibit 5: Report Form of Balance Sheet 6 -2 Liabilities Current liabilities: Accounts payable Note payable (current portion) Salaries payable Unearned rent Total current liabilities Long-term liabilities: Note payable (final pmt. due 2017) Total liabilities Owner’s Equity Cinta Cita, capital Total liabilities and owner’s equity (Concluded) Rp 22, 420 5, 000 1, 140 1, 800 Rp 50, 3 30 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 Returns and Allowances Purchases Discounts Transportation In Rp 121, 200, 000 142, 000 985, 000 23, 500, 000 21, 000 11, 300, 000 31 31

32 6 -2 Follow My Example 6 -2 Merchandise Inventory, May 1 Rp 121, 200 Purchases Less: Purchases returns and allowances Purchases discounts Net purchases Rp 940, 500 Add transportation in 11, 300 Cost of merchandise purchased Rp 985, 000 Rp 23, 500 21, 000 44, 500 951, 800 Merchandise available for sale Rp 1, 073, 000 Less merchandise inventory, May 31 For Practice: PE 6 -2 A, PE 6 -2 B 142, 000 Cost of merchandise sold Rp 931, 000 32 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. 33

34 6 -3 Cash Sales On January 3, Solusi. Net sold Rp 1, 800, 000 of merchandise for cash. @solusinet 34

35 Cash Sales (continued) 6 -3 Using a perpetual inventory, the Rp 1, 200, 000 cost of the inventory must be recorded. 35

36 Credit Card Sales 6 -3 At the end of the month, Rp 48, 000 was sent to pay the service charge on credit card sales. 36 36

37 6 -3 Sales on Account Using a Perpetual Inventory Jan. 12 Accounts Receivable—CV Agung Surya 510 000 Sales 510 000 Invoice No. 7172 12 Cost of Merchandise Sold Merchandise Inventory Cost of merchandise sold on Invoice No. 7172. 280 000 On January 12, Solusi. Net sold CV Agung Surya merchandise on account, Rp 510, 000. The cost of 37 37 the merchandise to the seller was Rp 280, 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 Rp 1, 470, 000 paid (Rp 1, 500, 000 less a 2% discount) Invoice for Rp 1, 500, 000 Terms: 2/10, n/30 39 39

40 6 -3 Invoice for Rp 1, 500, 000 Terms: 2/10, n/30 If invoice is NOT paid within 10 days of invoice date Full amount (Rp 1, 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, Solusi. Net receives the amount due, less the 2 percent discount. 41 41

42 6 -3 Jan. 13 Sales Returns and Allowances 225 000 Accounts Receivable-PT Krisna 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 Solusi. Net. Selling price, Rp 225, 000; cost to Solusi. Net, Rp 140, 000. 140 000 42 42

43 1 -2 6 -3 Example Exercise 6 -3 Journalize the following merchandise transactions: a. Sold merchandise on account, Rp 7, 500, 000 with terms of 2/10, n/30. The cost of the merchandise sold was Rp 5, 625, 000. b. Received payment less the discount. 43 43

44 6 -3 Follow My Example 6 -3 a. Accounts Receivable Sales Cost of Merchandise Sold Merchandise Inventory b. Cash Sales Discounts Accounts Receivable For Practice: PE 6 -3 A, PE 6 -3 B 7, 500, 000 5, 625, 000 7, 350, 000 150, 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 On January 3, Solusi. Net purchased merchandise for cash from Alden Company, Rp 2, 510, 000. 45 45

46 6 -3 Jan. 4 Merchandise Inventory Accounts Payable—CV Thomas Purchased inventory on account. 9 250 000 On January 4, Solusi. Net purchased merchandise on account from CV Thomas, Rp 9, 250, 000. 46 46

47 Purchases Discounts 6 -3 PT Alpha Technologies issues an invoice for Rp 3, 000 to Solusi. Net dated March 12, with terms 2/10, n/30. 47

48 6 -3 Solusi. Net 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 Rp 3, 000 Interest for 20 days at the rate of 6% on Rp 2, 940, 000 Savings from borrowing Rp 60, 000 – 9, 800 Rp 50, 200 48

49 6 -3 Purchase Transactions (Perpetual Inventory) Mar. 12 Merchandise Inventory 3 000 Accounts Payable— PT Alpha Tech. 3 000 Purchased inventory on account. On March 12, Solusi. Net purchased merchandise on account from PT Alpha Technologies, Rp 3, 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 2 940 000 60 000 If payment is made by March 22, Solusi. Net records the discount as a reduction in cost. Notice that Merchandise Inventory is credited because Net. Solutions maintains a perpetual inventory. 50 50

51 6 -3 Apr. 11 Accounts Payable— PT Alpha Technol. Cash Paid PT Alpha Technologies for March 12 purchase. 3 000 000 If Solusi. Net does not pay the invoice until April 11, it would pay the full amount. 51 51

52 Purchases Return 6 -3 A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order. 52

53 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 Solusi. Net receives the delivery from PT Malang Komputer and determines that Rp 900, 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 On March 7, Solusi. Net records the return of the merchandise indicated in Debit Memorandum No. 18. 55 55

56 6 -3 On May 2, Solusi. Net purchased Rp 5, 000 of merchandise from Delta Data Link, subject to terms 2/10, n/30. May 2 Merchandise Inventory Accounts Payable—Delta Data 5 000 000 Purchased merchandise. 56 56

57 6 -3 On May 4, Solusi. Net returns Rp 3, 000 of the merchandise. 4 Accounts Payable—Delta Data Link Merchandise Inventory 3 000 000 Returned portion of the merchandise purchased. 57 57

58 6 -3 On May 12, Solusi. Net pays the amount due, Rp 1, 960, 000 [Rp 2, 000 – (Rp 5, 000 – Rp 3, 000) x 2%)]. 12 Accounts Payable—Delta Data Links Cash Merchandise Inventory 2 000 1 960 000 40 000 Paid invoice [(Rp 5, 000 – Rp 3, 000) x 2% = Rp 40, 000; Rp 2, 000 – Rp 40, 000 =Rp 1, 960, 000] 58 58

59 6 -3 Example Exercise 6 -4 Ramli Company purchased merchandise on account from a supplier for Rp 11, 500, 000, terms 2/10, n/30. Rofles Company returned Rp 3, 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. Rp 8, 330, 000. Purchase of Rp 11, 500, 000 less the return of Rp 3, 000 less the discount of Rp 170, 000 [(Rp 11, 500, 000 – Rp 3, 000) x 2%]. b. Merchandise Inventory. For Practice: PE 6 -4 A, PE 6 -4 B 60 60

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. 61

62 6 -3 June 10 Merchandise Inventory Accounts Payable—Magna Data 900 000 900 00 Purchased merchandise, terms FOB shipping point. 10 Merchandise Inventory Cash 50 000 Paid shipping cost. On June 10, Solusi. Net buys merchandise from Magna Data on account, Rp 900, 000, terms FOB shipping 62 point and pays the transportation cost of Rp 50, 000. 62 50 00

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. 63

64 6 -3 FOB Destination @solusinet On June 15, Solusi. Net sells merchandise to PT Kiki on account, Rp 700, 000, terms FOB destination. The cost of the merchandise sold is Rp 480, 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 00 480 00 65 65

66 6 -3 June 15 Delivery Expense 40 000 Cash Paid shipping cost on merchandise sold. 40 000 On June 15, Solusi. Net pays the transportation cost of Rp 40, 000. 66 66

67 FOB Shipping Point 6 -3 On June 20, Solusi. Net sells merchandise to CV Permadi on account, Rp 800, 000, terms FOB shipping point. The cost of the merchandise sold is Rp 360, 000. 67

68 6 -3 June 20 Accounts Receivable—CV Permadi Sales Sold merchandise, terms 800 000 800 00 FOB shipping point. 20 Cost of Merchandise Sold Merchandise Inventory Record cost of merchandise 360 000 360 00 sold to CV Permadi 68 68

69 6 -3 June 20 Accounts Receivable—CV Permadi Cash Prepaid shipping cost on merchandise sold. 45 000 Solusi. Net pays the transportation cost of Rp 45, 000 and adds it to the invoice. 69 69

70 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. Rp 4, 500, 000 Rp 200, 000 FOB shipping point, Rp 800, 000 1/10, n/30 b. Rp 5, 000 60, 000 FOB destination, Rp 2, 500, 000 2/10, n/30 70 70

71 6 -3 Follow My Example 6 -5 a. Rp 3, 863, 000. Purchase of Rp 4, 500, 000 less return of Rp 800, 000 less the discount of Rp 37, 000 [(Rp 4, 500, 000 – Rp 800, 000) x 1%] plus Rp 200, 000 of shipping. b. Rp 2, 450, 000. Purchase of Rp 5, 000 less return of Rp 2, 500, 000 less the discount of Rp 50, 000 [(Rp 5, 000 – Rp 2, 500, 000) x 2%]. For Practice: PE 6 -5 A, PE 6 -5 B 71 71

72 6 -3 72 72 18

73 6 -3 Sales Taxes Aug. 12 Accounts Receivable—CV Lemon 106 000 Sales Taxes Payable Invoice No. 339 On August 12, merchandise is sold on account to Lemon Company, Rp 100, 000. The state has a 6% sales tax. 100 000 6 000 73 73 18

74 6 -3 Sept. 15 Sales Tax Payable 2 900 000 Cash 2 900 00 Payment for sales taxes collected during August. On September 15, the seller sends in a payment of Rp 2, 900, 000 to the taxing unit for the August taxes collected. 74 74 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. 75

76 Dual Nature of Merchandise Transactions 6 -3 Each merchandising transaction affects a buyer and a seller. In the following illustrations, we show the same transactions would be recorded by both the seller and the buyer. July 1. CV Santi sold merchandise on account to CV Budiman, Rp 7, 500, 000, terms FOB shipping point, n/45. The cost of the merchandise sold was Rp 4, 500, 000. 76

77 6 -3 CV Santi (Seller) Accounts Receivable—CV Budiman Sales 7, 500, 000 Cost of Merchandise Sold Merchandise Inventory 4, 500, 000 CV Budiman (Buyer) Merchandise Inventory. Accounts Payable—CV Santi 7, 500, 000 77 77 18

78 6 -3 July 2 CV Budiman paid transportation charges of Rp 150, 000 on July 1 purchase from CV Santi. 78

79 6 -3 CV Santi (Seller) No entry. CV Budiman (Buyer) Merchandise Inventory Cash 150, 000 79 79 18

80 6 -3 July 5 CV Santi sold merchandise on account to CV Budiman, Rp 5, 000, terms FOB destination, n/30. The cost of the merchandise sold was Rp 3, 500, 000. 80

81 6 -3 CV Santi (Seller) Accounts Receivable—CV Budiman Sales 5, 000, 000 Cost of Merchandise Sold Merchandise Inventory 3, 500, 000 CV Budiman (Buyer) Merchandise Inventory. Accounts Payable—CV Santi 5, 000, 000 81 81 18

82 6 -3 July 7. CV Santi paid transportation costs of Rp 250, 000 for delivery of merchandise sold to CV Budiman on July 5. 82

83 6 -3 CV Santi (Seller) Delivery Expense Cash 250, 000 CV Budiman(Buyer) No entry. 83 83 18

84 6 -3 July 13. CV Santi issued CV Budiman a credit memorandum for Rp 1, 000 of merchandise returned from a July 5 purchase on account. The cost of the merchandise was Rp 700, 000. 84

85 6 -3 CV Santi (Seller) Sales Returns and Allowances 1, 000 Accounts Receivable—CV Budiman 1, 000 Merchandise Inventory Cost of Merchandise Sold 700, 000 CV Budiman (Buyer) Accounts Payable—CV Santi Merchandise Inventory 1, 000, 000 85 85 18

86 6 -3 July 15. CV Santi received payment from CV Budiman for purchase of July 5. 86

87 6 -3 CV Santi (Seller) Cash 4, 000 Accounts Receivable—CV Budiman 4, 000 CV Budiman (Buyer) Accounts Payable—CV Santi Cash 4, 000, 000 87 87 18

88 6 -3 July 18. CV Santi sold merchandise on account to CV Budiman, Rp 12, 000, terms FOB shipping point, 2/10, n/eom. Santi prepaid transportation costs of Rp 500, 000, which were added to the invoice. The cost of the merchandise sold was Rp 7, 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 CV Budiman (Buyer) Merchandise Inventory Accounts Payable—CV Santi 12, 000, 000 500, 000 7, 200, 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 Rp 12, 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 1 -2 6 -3 Example Exercise 6 -6 Santi Co. sold merchandise to Butet Co. on account, Rp 11, 500, 000, terms 2/15, n/30. The cost of the merchandise sold is Rp 6, 900, 000. Santi Co. issued a credit memorandum for Rp 900, 000 for merchandise returned and later received the amount due within the discount period. The cost of the merchandise returned was Rp 540, 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 (Rp 11, 500, 000 – Rp 900, 000 – Rp 212, 000) 10, 388, 000 Sales Discounts [(Rp 11, 500, 000 – Rp 900, 000) x 2%] 212, 000 Accounts Receivable—Butet Co. (Rp 11, 500, 000 – Rp 900, 000) 10, 600, 000 Butet Company Journal Entries: Accounts Payable—Santi Co. (Rp 11, 500, 000 –Rp 900, 000) Merchandise Inventory [(Rp 11, 500, 000 – Rp 900, 000)x 2%] Cash (Rp 11, 500, 000 – Rp 900, 000 – Rp 212, 000) 10, 600, 000 212, 000 10, 388, 000 93 93 For Practice: PE 6 -6 A, PE 6 -6 B

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 Solusi. Net inventory records indicate that Rp 63, 950, 000 of merchandise should be available for sale on December 31, 2009. The physical count reveals that only Rp 62, 150, 000 is actually available. 96

97 6 -4 Adjusting Entry Dec. 31 Cost of Merchandise Sold Merchandise Inventory shrinkage (Rp 63, 950, 000 – Rp 62, 150, 000). Inventory records Inventory count Inventory shortage 1 800 000 Rp 63, 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 6 -4 31 Income Summary 312 645 385 000 Sales Returns and Allow. 411 6 140 000 Sales Discounts 412 5 790 000 Cost of Merchandise Sold 510 525 305 000 Sales Salaries Expense 520 53 430 000 Advertising Expense 521 10 860 000 Depr. Exp. —Store Equip. 522 3 100 000 Delivery Expense 523 2 800 000 Misc. Selling Expense 529 630 000 Office Salaries Expense 530 21 020 000 Rent Expense 531 8 100 000 Depr. Exp. —Office Equip. 532 2 490 000 Insurance Expense 533 1 910 000 Office Supplies Expense 534 610 000 Misc. Administrative Exp. 539 760 000 Interest Expense 710 2 440 000 100

101 6 -4 Step 3: Closing Entries Close Income Summary (the balance represents a Rp 75, 400, 000 profit for Solusi. Net in 2009) to Cinta Cita, Capital. 31 Income Summary Cinta Cita, Capital 312 310 75 400 000 101

102 6 -4 Step 4: Closing Entries Close Cinta Cita, Drawing to Cinta Cita, Capital. 31 Cinta Cita, Capital Cinta Cita, Drawing 310 311 18 000 000 102

103 1 -2 6 -4 Example Exercise 6 -7 Parulian Company’s perpetual inventory records indicate that Rp 382, 800, 000 of merchandise should be on hand on March 31, 2008. The physical inventory indicates that Rp 371, 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 (Rp 382, 800, 000 –(Rp 371, 250, 000) Merchandise Inventory For Practice: PE 6 -7 A, PE 6 -7 B 11, 550, 000 103

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 Total revenues (net sales) PT Matahari Prima Putra Rp 5, 147, 229 Rp 9, 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 assets: Ratio of net sales to assets 105

106 Interpretation 6 -4 Based on these ratios, PT Hero Supermarket appears better than PT Matahari Putra Prima in utilizing its assets to generate sales. 106