Financial Accounting and Reporting

Chapter 8-Completing the Cycle for a Merchandising Business

October 27, 2022 @ 2:30-5:30 PM
Hybrid Modality

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Opening prayer

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Concerns from the last meeting
• Chapter 7-Merchandising Operations-Part 5

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Learning outcomes
• Recognize the need for a physical count and analyze the effects of omitting the procedure.
• Determine the entries for merchandise inventory using either the adjusting entry method or the
closing entry method.
• Prepare the adjusting entries for a merchandising entity.
• Recognize the need for a worksheet and summarize how the new accounts related to merchandising
transactions are handled in the worksheet.
• Understand and appreciate the usefulness of financial statements.
• Develop skills in the preparation of financial statements.
• Compare income statements prepared under the nature of expense and function of expense methods.
• Explain why temporary accounts are closed each period.
• Recognize the need for a post-closing trial balance and reversing entries in particular instances.
• Prepare closing entries, post-closing trial balance and reversing entries.
• Explain how the worksheet under a perpetual inventory system differs from that prepared under a
periodic inventory system.
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True or false
• The beginning merchandise inventory is closed just like income items.

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Need for a physical count
• Periodic system – beginning merchandise inventory remains the same
before adjusting and closing
• Counting needed to determine ending merchandise inventory

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Merchandise inv. at the end of the period
• Remove beginning inventory balance thru the Income Summary
• Establish ending inventory balance thru the Income Summary
• The adjusting entry method – time of adjusting
• The closing entry method – time of closing

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Preparing the worksheet
• Beginning inventory – extended to debit side of IS column
• Ending inventory – extended to credit side of IS column and debit side of
BS column

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Preparing the financial statements
• Nature of expense method
• Function of expense method

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Adjusting and closing entries
• The beginning merchandise inventory is closed just like expense items.
• The ending merchandise inventory is closed just like income items

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Post-closing trial balance
• Similar with service business

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Appendix - worksheet in a perpetual i.s.
• Merchandise inventory account – ending balance
• “Cost of sales” is a ledger account
• Adjustments are handled like in periodic system.
• Adjusting entry needed if per record and per count differs.

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Seatwork
• Please answer Problem No. 08 (p. 8-26) today.

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Assignment
• Please answer Problem No. 7 (p. 8-25)-balance sheet, in iStudy on or
before 1:00 pm of November 02 (Thursday).

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Concerns for this meeting

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Integration of faith and learning
• Be diligent to present yourself approved to God, a worker who does not
need to be ashamed, rightly dividing the word of truth. – 2 Timothy 2:15,
NKJV

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Closing prayer

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Thank you for coming, see you again

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