CHAPTER 3

ACCOUNTING FOR MERCHANDISING ENTERPRISES

3.1Introduction
Merchandising enterprises are organizations engaged in acquiring (purchasing) merchandise for resale
at a profit to customers. Both whole sellers and retailers purchase ready made goods and get or earn
revenue by selling those goods. The term merchandise refers to the goods held for resale to the
customers.
Operating Cycle
 OPERATING CYCLE (OC) is the average length of time between the purchase of merchandise
inventory and the realization of cash from the sale of the merchandise inventory.
 OC consists of three phases:
(1) Purchase of inventory
(2) Sales of the merchandise inventory
(3) The collection of cash from the Accounts receivable or at the time of sale
 The cycle of a merchandising entity begins with cash, which is used to purchase inventory.
 For cash sales, the cycle is from cash to inventory, which is purchased for resale, and back to cash.
 For a sale on account (on credit) the cycle is from cash to inventory, to accounts receivable and
back to cash.

A. Purchase and Cash Sale

Cash
Cash purchases
Sales
Inventor
y

B. Purchase and Sales on Account

Cash

Purchases
Collection
Inventory
Accounts
Sales on account
Receivable

3.2 Accounting For Purchases of Merchandises Business

3.2.1 Recording Purchases
 Purchases account is an account used to keep record of the cost of items purchased for resale under
periodic inventory system.
a) Purchase of merchandising for cash
 Example. AB Co. purchased merchandise $20,000 cash from XYZ Corporation. Pass the
necessary entry:
Purchase……………….20, 000
Cash…………………….20, 000
(Purchases of merchandise for cash)
b) Purchase of merchandise on credit ( on account)
E.g. AB. Co. purchased merchandise on account $8,000 from TT co. Pass the entry:
Purchase …………………...8,000
Account payable……………8,000
(Purchased merchandise on account)
Note: The purchase account is used only for merchandise purchased for resale to customers; other assets
purchased for use (not for sale) in the business are not debited to the purchase account. Such asset
acquisitions are recorded by debiting the appropriate asset accounts. Purchases of merchandise are usually
identified in the ledger as purchases.
E.g AB. Co purchased office equipment on account $ 11,000. Pass the entry.
Office equipment……….………11,000
Account payable………….11, 000
3.2.2 The Source Documents related with purchase
 Purchase requisition;  Sales or Purchase Invoice; and
 Purchase order;  Receiving report

2
 Before approving the invoice for payment, the accounts payable department compares copies of the
purchase order, invoice, and receiving report to ensure that quantities, descriptions, and prices are in
agreement.
Cash discount: is a reduction from invoice price allowed by the seller to the buyer to encourage the
buyer to make payment before the end of the credit period.
Purchase discount- in the book of the purchaser
Cash discount
Sales discount- in the book of the seller
3.3 Deductions from Purchases
 There are two major deductions from the purchase account. These are:
i. Purchase discounts, and
ii. Purchase returns and allowances
i. Purchase Discounts
Credit terms – Are the arrangements agreed upon by the buyer and the seller as to when payments for
merchandise are to be made.
A Purchase discount is a reward for prompt payment.
 If payment is to be made immediately upon delivery, the terms are said to be “cash” or “net cash”.
Otherwise, the buyer is allowed a certain amount of time, known as the credit period, in which to
pay. It is usual for a credit period to begin with the date of the sale as shown by the date of the
invoice or bill.
The credit terms may be stated in either of the following customarily used ways:
 N/30, (net 30 days) means payment is due within 30 days after the date of the invoice.
 N/EOM, (net end of the month) means the net amount is due by the end of the month in which the
sale was made.
 3/12, n/50, means that although the credit period is 50 days the purchaser may deduct 3% of the
invoice price if he/she paid within 12 days.
o The period of time within which a discount is available is called the discount period.
ii.Recording Purchase Discounts
 Purchase discounts are recorded by crediting the purchases discount account and are usually viewed
as a deduction from the amount initially recorded in purchases account.
 The purchases discounts account is a contra (offsetting) account to purchases. The following
example illustrates how purchase discount is recorded.
 The journal entry to record the previous transaction would be:
Oct. 11. Purchases ----------------------------1,500
Accounts payable ----------------------1,500
To record the purchase of merchandise on account
Oct. 21. Accounts payable --------------------1,500
Cash (.98x1, 500) ----------------------- 1470
Purchases discount (.02x1,500) ------- 30
To record the payment to settle the debt of Oct. 11
 It should be noted that the Purchase discount is calculated based on the invoice price of goods.
Example:
1. January 1 X co. Purchased merchandise on account from K co., $3,000 terms 2/10, n/30
Invoice no 105
January 11 X co. Paid K co. the amount owed for the purchase of January 1
Required: Prepare the necessary journal entry

2. On March 20 a company purchased merchandise on account with terms 3/12, n/30

On April 1 the company paid $9,700
Required: Pass the necessary journal entry
 i. At the date of purchase
ii. At the date of payment
Purchase Returns and Allowances
Most businesses allow their customers to return merchandise that is defective, damaged in shipment, or
otherwise unsuitable or if the buyer chooses to keep damaged goods, the seller may deduct an allowance
from the amount the buyer owes. The details may be stated in latter or the buyer (debtor) may use a debit
memorandum form. Debit memorandum form is a convenient medium for informing the seller (creditor) of
the amount the buyer proposes to debit to the accounts payable account. It also states the reason for the
return or request for a price reduction. The debtor may use a copy of the debit memorandum as the basis
for an entry or may wait for confirmation from the creditor, which is usually in the form of a credit
memorandum. In either event, account payable must be debited and purchases returns and allowances must
be credited.
 The purchase returns and allowances account can be viewed as a deduction from the amount initially
recorded in purchase.
 Like purchases discounts, the purchases returns and allowances account is a contra (offsetting)
account to purchases.
 To illustrate, suppose the Br. 70 merchandise purchased by ABC Co., in the previous example, was
not the merchandise ordered. ABC co. returns the merchandise to the seller and records the
purchase return as follows:
Oct. 18. Accounts payable ………………. ………70
Purchases returns & allowances ………… 70
To record the return of merchandise to the seller
 When a buyer returns merchandises or has been granted an allowances prior to the payment of the
invoice, the amount of the debit memorandum is deducted from the invoice amount before the
purchase discount is computed.
 To illustrate, suppose that the details related to the purchase made by ABC co. and a debit memo for
Br. 70 are as follows:

(1) Invoice amount ------------------------------ Br. 1,500.00

(2) Debit memo ---------------------------------- __ 70.00
(3) Balance of account -------------------------- 1,430.00
(4) Discount [2% of (3)] __ 28.60
(5) Cash payment [(3)-(4)] 1401.40
 As of October 21, the cash payment could be recorded by xyz co., as follows:
Oct. 21. Accounts payable …………………….. 1430
Cash …………………………………1401.40
Purchases Discounts ………………... 28.60
To record the payment to settle the invoice.
 Note that the discount is calculated only on the cost of the merchandise kept by the purchaser, not on
the invoice price.
iii. Trade discounts
 Deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogues.
 A deduction from suggested/list/catalogue price.
iv. Quantity discount
 A reduction allowed on merchandise depending on the amount purchased.
v. Illustration about the three discounts at one time.
 Consider the credit purchase made by X Co. on Feb. 12. The merchandise purchased was listed by the
manufacturer at Br. 70,000 and subject to a 30% trade discount and a 10% quantity discount for all
orders over Br. 30,000. If the invoice is paid within 10 days a 2% cash discount will also apply.
 Suggested list price 70,000
Less: 30% trade discounts 21,000
Total 49,000
Less: 10% quantity discounts 4,900
Total 44,100
Less: 2% cash discount 882
Price X pays the seller 43,218
3.3 Accounting for Sales of Merchandising Business
3.3.1 Recording Sales
 The sale of inventory may be for cash or on account. The accounting treatment also differs
accordingly.
 Cash sale: - it is recorded by debiting the Cash account and crediting the revenue account, Sales
Revenue.
Jan. 9 Cash --------------------------- xxxxxx
Sales ------------------------------- xxxxxx
Cash sales for the day.
 Credit sales: - it is recorded by debiting the receivables account and crediting the revenue
account, Sales Revenue.
Jan 11. Accounts Receivable -------- xxxxxx
Sales -------------------------------- xxxxxx
Sale on account.
3.3.2 Recording Cash Receipts from sales on account
 The related cash receipt on account is journalized as follows:
Jan. 19. Cash -------------------------- xxxxxx
Accounts Receivable -------------- xxxxxx
Collection on account.
3.3.3 Deductions from Sales
 There are two major deductions from the sales account. These are:
i. Sales discounts, and
ii. Sales returns and allowances

(1).The Sales Discount

 The seller refers to the discount taken by the buyer for early payment of an invoice as Sales
discounts.
 They are recorded by debiting the sales discount account and are considered to be reduction in
the amount initially recorded in sales.
 In this sense, the balance of the sales discounts account is viewed as a contra (off setting)
account to sales.
 To illustrate, assume that on July 12, a business sold merchandise for Br. 2,000 on account;
terms are 2/10, n/30. A check in payment of the account was received on July 21. The required
journal entries for the seller are:
July 12. Accounts receivable ----------------------- 2,000
Sales -------------------------------------- 2,000
To record sale on account.

 When the amount due is paid, the journal entry required will be:
July 21. Cash --------------------------------- 1,960*
Sales Discounts ---------------------- 40**
Accounts Receivable ------------------- 2,000
 To record collection on account.

*Amount received = .98x2000

= 1960
**Discount = (invoice – receipt)
= 2000 -1960
= 40
(2). Sales Returns and allowances
 Merchandising companies usually allow a customer to return goods that are defective or
unsatisfactory for a variety of reasons.
 A sales return is merchandise returned by a buyer and is considered a cancellation of a sale.
 Sometimes the customer keeps the unsatisfactory goods and is given an allowance, off the
original price.
 A sales allowance is a deduction from the original invoice sales price granted to a customer
when the customer keeps the merchandise but is dissatisfied.
 Following are two examples illustrating the recording of sales returns in the sales returns and
allowances account:
1. Assume that Br. 300 of goods sold on account are returned by a customer on July 15. If
payment has not yet been received, the required entry is:
July 15 Sales returns and allowances ----------- 300
Accounts Receivable --------------------- 300
To record a sales return from a customer.
July 21 Cash ------------------------------ 1,666
Sales discount------------------- 34
Accounts receivable -----------1,700

2. Assume the customer has already paid the account and the seller gives a refund. Now the
credit is to the Cash account than Accounts Receivable. If a 2% discount were taken by
the customer when the account was paid, only the sales price less the sales discount
amount would be returned to the customer. For example, if a customer returns a Br. 300
sale on which a 2% discount was taken, the following entry would be made:
July 25 Sales returns and Allowances --- 300
Cash ----------------------------- 294
Sales Discounts ---------------- 6
To record a sales return from a customer.
 Following are two examples illustrating the recording of sales allowance in the sales returns and
allowances account:
 Assume that a Br. 400 allowance is granted to the customer for damage resulting from
improperly packed merchandise. The journal entry required will be either of the following
alternatives depending upon the situation.
1) If the customer has not yet paid the account, the required entry would read:
Sales return and allowances ------------------ 400
Accounts receivable ---------------------------- 400
To record sales allowance granted for damaged merchandise.
2) If the customer has already paid the account, the credit is to cash instead of Accounts
Receivable. If the customer took a 2% discount when paying the account, only the net
amount (Br. 392) would be refunded, and Sales Discounts would be credited for Br. 8.
The entry would be:
Sales Returns and Allowances ---------------- 400
Cash ----------------------------------------------- 392
 Sales Discounts ---------------------------------- 8
To record sales allowances when a customer has paid and
taken a 2% discount.
3.4Accounting For Transportation Costs
 The terms of the agreement between the buyer and the seller include provisions concerning:
1. When the ownership (title) of the merchandise passes to the buyer, and
2. Which party is to bear the transportation cost to deliver the merchandise to the buyer?
 A summary of the widely used terms and their effect on transfer of ownership title and
transportation costs is summarized in the following table.
FOB Shipping Point FOB Destination
Ownership (title) passes to buyer when merchandise is Delivered to shipper Delivered to buyer
Transportation costs are born by Buyer Seller

 FOB: Means free on board

 The shipping costs born by a purchaser are debited to an account called Transportation In.
 On the firm's income statement, the balance in this account is included in the computation of Net
Cost of Purchases.
 Transportation costs incurred by a seller are debited to an account called Transportation Out. This
account some times called Delivery Expense
 The balance in Delivery Expense account is listed with expenses on the income statement.
 If the term of agreement is FOB Shipping Point and if the buyer has covered the transportation
costs, the journal entry required to record the transportation cost is as shown below.
In the seller’s book In the buyer’s book.
 However, if
the shipping
No entry is required. Transportation In ……xxx
costs are prepaid
Cash …………………… xxx
by the seller,
To record the freight expense.
the seller and
buyer
simply adjust the amount of the payment for the merchandise. That is, the seller adds the freight
charges to the invoice amount on its records; the buyer reflects the freight cost as Transportation in.
The entries are as follows:
In the seller’s book: In the buyer’s book.
Accounts Receivable ……….xxx Transportation In ………….xxx
Cash…………………… …xxx Accounts payable …………..xxx

 In this situation, the buyer is not entitled to a discount on the amount of the freight. Meaning,
when the terms provide for a discount for early payment, the discount is based on the amount of
the sales rather than on the invoice total.
 To illustration, assume that on July. 12, XYZ co. purchases merchandise from ABC co. on
account, Br 2,000, terms FOB shipping point, 2/10,n/30, with prepaid transportation costs of Br.
50 added to the invoice.

In the seller’s book In the buyer’s book

(At the time of sale) (At the time of purchase)

Accounts Receivable ----2050 Purchases ---------------- 2000

Sales ----------------2000 Transportation In ------- 50
 Cash ----------------- 50 Accounts Payable ------2050

 If the buyer pays the invoice during the discount period, the amount to be remitted is Br.
2010(2050-40). The entries to record the remittance are as follows:
In the seller’s book In the buyer’s book
(At the time of receipt) (At the time of payment)

Cash ----------------------- 2010 A/payable ------------------ 2050

Sales discount ------------- 40 Purchase discount ------- 40
Accounts Receivable--------- 2050 Cash ------------------------2010

 If the transportation costs were paid by the buyer, the journal entries to record the
sales/purchase and the receipt/payment would have been as follows:

In the seller’s book In the buyer’s book

Accounts receivable ---- 2000 Purchases -------------- 2000

Sales ------------------------ 2000 Transportation in ----- 50
Cash ------------------------ 50
A/payable ------------------ 2000
Cash ----------------------- 1960 A/payable ------------------ 2000
Sales discount ------------- 40 Purchase discount -------- 40
Accounts Receivable--------- 2000 Cash ----------------------- 1960
 On the other hand, when merchandise is purchased on FOB destination, the accounting
treatment would be different, some how.
In the seller’s book In the buyer’s book

Delivery expense -------- xxx No Entry.

Cash ------------------- xxx
 Under terms similar to the above case but the buyer pays the shipping changes, the buyer
deducts the fright charges from the amount owing the seller. To illustrate, reconsider the same
example but FOB destination arrangement. The entries to record the shipment are:
In the seller’s book In the buyer’s book

Accounts Receivable ------ 1950 Purchases ----------- 2000

Delivery expense ----------- 50 Cash -------------------------50
Sales----------------------------2000 Accounts payable --------- 1950
 If the buyer company pays the invoice during the discount period, the amount to be remitted is
Br. 1910 (Br. 1950-40 discount). The entries to record the remittance are:
In the seller’s book In the buyer’s book
Cash -------------------- 1910 Accounts payable ---------1950
Sales discount -------- 40 Purchase discount-------- 40
Accounts Receivable --------- 1950 Cash----------------------1910

 If the transportation costs were paid by the seller, the journal entries to record the sales/purchase
and the receipt/payment would have been as follows:
 In the seller’s book In the buyer’s book

Accounts Receivable ---- 2000 Purchases -------------- 2000

Delivery Expense -------- 50
Sales ------------------------ 2000
Cash ------------------------ 50
Cash ----------------------- 1960
Sales discount ------------- 40
Accounts Receivable--------- 2000
A/payable ------------------ 2000
A/payable ------------------ 2000
Purchase discount -------- 40
Cash ------------------------ 1960

3.5 ACCOUNTING FOR SALES TAXES

 Many products and services are subject to sales taxes.
 The laws governing sales taxes usually require the retail (or selling) firm to collect the tax at the
time of sale and to remit the collections periodically to the appropriate taxing agency.
 Thus, the liability for the sales tax is ordinarily incurred at the time the sale is made, regardless of
the terms of the sale.
 When the company collects the taxes from the customers, it debits Cash and credits Sales Taxes
Payable.
 Periodically the sales taxes collected are paid to the state. At that time, the company debits sales
taxes payable and credits cash.
 To illustrate, assume that a particular product selling for Br. 2,000 is subject to a 5% sales tax and
terms 2/10,n/30. We record the above sales/purchase as follows:
In the seller’s book In the buyer’s book

Accounts Receivable --- 2100 Purchases -------------- 2100

At the time of sale. Sales---------------------- 2000 A/payable ---------------2100
Sales taxes payable-------100
Return of merchandise Sales return & allow. ---100 Accounts payable -------- 105
before payment Sales Taxes payable ------5 Purchase retu. & allow. -- 105
(Br. 100) Accounts Receivable---- 105

Payment made within Cash --------------------1957 Accounts payable ----- 1995

the discount period Sales discount ----------- 38 Purchase discounts -- 38
Accounts Rec. ----1995 Cash ----------------------1957
 Sales tax on the returned merchandise would no more be payable to the governmental agency.
 Sales discounts are given on the net sales price. Sales discounts are not given on any amount for
which credit was given, on return or allowance, or on any sales tax charged.
 Assume further that sales (net of returns and allowances) for a specific period amounted Br.
150,000. Thus, the sales tax payable account will have a balance of Br. 7,500 (5% x 150,000).
When the company remits the funds to the state's taxing agency, the following entry would be
passed to show the payment:
Sales tax payable ------------------- 7,500
Cash ---------------------------------------- 7,500
 3.6 Merchandise Transactions Using Perpetual And Periodic Inventory Systems
 There are two basic systems for accounting for merchandise held for sale- perpetual inventory
procedure and periodic inventory procedure.
 3.6.1 Perpetual inventory system
 Features
 Inventory records are designed and maintained to provide close control over the actual goods on
hand.
 It keeps a continual record of the amount of inventory on hand.
 A perpetual system accumulates the net cost of merchandise purchases in the inventory account
and subtracts the cost of each sale from the same inventory account.
 The cost of merchandise on hand at any time is the balance of the inventory account.
 cost of goods sold during a period is reflected in the Cost of Goods Sold account.
 Records the acquisition of merchandise as debits to the inventory account.
 At the time of sale, the cost of goods sold will be determined and recorded as a debit to the cost of
goods sold account and credit to inventory account.
 Provides an up to date record of inventory.
7.2 Periodic Inventory System
 Features
 The merchandise inventory balance remains unchanged. It reflects the beginning inventory
balance until it is updated again at the end of the period.
 It does not require continual updating of the inventory account.
 Records acquisition of merchandise as debits to purchase account.
 Makes no entry at the time of sales for the cost of goods sold.
 Only periodically updates the inventory account when year-end adjusting and closing entries are
made.
7.3 Periodic and Perpetual Inventory Systems: Accounting Comparisons
 Under the perpetual system, each purchase, purchase return and allowance, purchase discount, and
transportation-in transaction is recorded in the Merchandise Inventory account.
 Under a period inventory system, a separate temporary account is set up for each of these items. At
the end of a period, each of these temporary accounts is closed and the Merchandise Inventory
account is updated.

Purchases
XYZ purchases merchandise for Br. 1,200 on credit with terms of 2/10, n/30. XYZ's entry to record
this credit purchase is:
(a) Periodic Perpetual

Merch. Inventory ……1200

A/payable …………………1200

Purchase discounts
When XYZ pays the supplier for the previous purchase in (a) within the discount period, the required
payment is recorded as:

(b) Periodic Perpetual

A/payable……… 1200
Merch. Inventory … 24
Cash…………….1,176
Purchase Returns and Allowances
XYZ returns merchandise purchased on November 2 because of defects. If the recorded cost of the
defective merchandise is Br. 300, XYZ records the return with this entry:
(c) periodic perpetual
 A/payable……… 300
Merch. inventory… 300

Transportation In

XYZ paid a Br. 75 freight charge to haul merchandise to its store:

(d) Periodic Perpetual

Merch. inventory …… 75
Cash…………………75

Sales
XYZ sold Br. 2,400 of merchandise on credit and XYZ's cost of this merchandise is Br. 1,600:

(e) Periodic Perpetual

A/ Receivables ……2,400
Sales ……………….2,400

Sales returns
A customer returns part of the merchandise from the previous transaction in (e), where returned
items sell for Br. 800 and cost Br. 600. XYZ restores the merchandise to inventory and records the
return as:

(f) Periodic Perpetual

Sales return & allow.…800

A/Receivable ………….800

Merch. Inventory ……600

COGsold……………..600

3.7Determining The Cost Of Goods Sold

 For merchandising enterprises that use the periodic system, the cost of merchandise sold during a
periodic is reported in a separate section in the income statement.
 The cost of goods sold will be determined by computation if we are employing the periodic
inventory system.
 To illustrate the determination of cost of sales, assume the following account balances for XYZ
retail co. as of December 31,19x1.
 Merchandise inventory, Jan. 1,19x1. ……………………… Br. 24,000
Purchases ……………………………………………………. 167,000
Purchase discounts …………………………………………. 3,000
Purchase returns & allowances …………………………… 8,000
Transportation in ……………………………………………. 10,000
Merchandise inventory, Dec. 31,19x1 ……………………. 31,000

 The cost of goods sold would be calculated as follows.

Cost of Goods Sold:

Merchandise inv. Jan. 1,19x1.----------------------------- Br. 24,000
Purchases ----------------------------------- Br. 167,000
Less: purchases discounts. Br. 3,000
Purchase Ret. & allow. 8,000 11,000
Net purchase 156,000
Add: Transportation In 10,000
Cost of merchandise purchased 166,000
Cost of merchandise available for sale 190,000
Less: merchandise inventory, Dec. 31,19x1. 31,000
Cost of merchandise sold Br. 159,000

3.8Worksheet For Merchandising Enterprises

 After year-end posting of the information in the journal is completed, a worksheet is used to assist
in the adjusting entries, closing entries, and financial statements.
 The worksheet is almost identical to what we have seen in the previous chapter. But the new things
here are the beginning inventory, the ending inventory, and other merchandising accounts.
3.8.1 Completing the Worksheet
 After all the necessary adjustments are entered on the worksheet, the two adjustments columns are
totaled to prove the equality of the debits and credits.
 The balances of the accounts in the trial balances columns and the amount of any adjustments are
added or deducted as appropriate. The adjusted balances are then extended in to the Adjusted Trial
Balance columns, which are totaled to prove the equality of debits and credits. Both the debits and
credit amounts for Income Summary accounts are extended.
 An exception to the usual practice of extending only the account balances should be noted. Both the
debit and credit amounts for the Income Summary are extended to the Income Statement columns.
Since both the amount of the debit adjustment (beginning inventory) and the amount of the credit
adjustment may be reported on the Income Statement, there is no need to determine the difference
between the two amounts.
 After all the items have been extended into the statement sections of the worksheet, the four
columns are totaled and the net income or net loss is determined.
3.8.2 Preparation of Worksheet for Merchandising Enterprises
 The unadjusted trial balance of ABC Company on December 31, 2004 is presented below.
ABC Company
Unadjusted Trial Balance
December 31, 2004
Account Titles Debit Credit
Cash 2,300
Accounts receivable 12,500
Prepaid insurance 5,600
 Merchandise inventory 23,700
Store supplies on hand 5,700
Store equipment 17,300
Acc. Depreciation-store equipment 3,500
Notes payable 19,600
Accounts payable 3,500
Sales tax payable 3,400
Flower, capital 25,600
Flower, withdrawal 3,000
Sales 110,200
Sales return and allowance 2,300
Sales discounts 3,100
Purchases 67,800
Purchase discounts 1,300
Purchase returns and allowances 1,200
Freight-In 3,900
Salary expense 11,400
Advertising expense 5,000
Entertainment expense 4,000
Repair expense 700
Totals 168,300 168,300
 Additional information:
a. The ending merchandise inventory amounted Br. 18,500.
b. Salary expense accrued on December 31, 2004 amounted Br. 3, 500
c. The prepaid insurance reported on the trial balance is an amount that was paid on January 1,
2004 which applies for four years starting from January 1.
d. Store supplies on hand amounts to Br. 3,100 on December 31, 2004.
e. The depreciation expense for 2004 amounts to Br. 500 on store equipment.
 Required:
1. Prepare the Work Sheet of ABC Company for the year ended Dec. 31
2004. Key each adjusting entry by the letter corresponding to the data given.
2. Prepare the following financial statements from the work sheet.
i. The multiple-step income statement
ii. The report form balance sheet
3. Journalize the necessary adjusting entries
4. Journalize the closing entries