sales journal

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College Accounting First Canadian
Edition Price Haddock Brock Hahn
Reed
McGraw-Hill Ryerson
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CHAPTER 9
COMPLETING THE WORKSHEET FOR A MERCHANDISING
BUSINESS
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OBJECTIVE 1 Determine the adjustments for
merchandise inventory.
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FASHION WORLD Worksheet (Partial)
For the Year Ended December 31, 20X4

TRIAL BALANCE
ADJUSTMENTS ACCOUNT NAME
DEBIT CREDIT
DEBIT
CREDIT Cash 7,200.00
Petty Cash 100.00 Accounts
Receivable 23,500.00

(i) 68.00
Allowance for Doubtful Accounts
100.00 (b)
630.00 Merchandise Inventory
33,009.01 (a) 500.00
Prepaid Insurance 4,800.00
(h) 1,800.00 Supplies
5,900.00
(g) 4,240.00
Store Equipment 12,000.00

Accumulated Amortization Store Equipment


(c) 2,100.00
Office Equipment 3,500.00 Accumulated
Amortization Office Equipment
(d) 600.00 Notes Payable Trade
3,000.00 Notes Payable Bank
9,000.00 Accounts Payable 3,138.00
Interest Payable 359.01
(f) 75.94
CPP Contributions Payable 610.00 EI
Premiums Payable 225.00 Wages
Payable
(e) 2,700.00 Prepaid GST
1,460.00 GST Payable 2,390.00
Provincial Sales Tax Payable 2,731.00
Carolyn Wells, Capital
71,632.76
Carolyn Wells, Drawing
30,000.00 Sales
409,650.00 Sales Returns and Allowances
13,000.00 Miscellaneous Income
(i) 68.00 Cost of Goods Sold
250,000.00 Merchandise Inventory Loss
(a) 500.00 Sales Salaries
Expense
56,490.00 Wages Expense
12,000.00 (e)
2,700.00 Advertising Expense
7,425.00 Supplies Expense

(g) 4,240.00 Cash Short
or Over 125.00
An End-of-Period Worksheet
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FASHION WORLD Worksheet (Partial)
For the Year Ended December 31, 20X4

TRIAL BALANCE
ADJUSTMENTS ACCOUNT NAME
DEBIT CREDIT
DEBIT
CREDIT Amortization Expense Store
Equipment
(c) 2,100.00 Amortization Expense
Office Equipment (d)
600.00 Rent Expense
13,500.00 Insurance Expense
(h) 1,800.00 Utilities Expense
2,915.00 Payroll
Taxes Expense 6,331.76
(f) 201.15 Telephone Expense
2,720.99 Uncollectible
Accounts Expense (b)
630.00 Interest Expense 359.01
(f) 75.94
Totals 502,835.77
502,835.77
12,713.94
12,713.94
An End-of-Period Worksheet (Contd.)
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OBJECTIVE 2 Determine the adjustment for loss
from uncollectible accounts.
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UNCOLLECTIBLE ACCOUNTS EXPENSE

• Has a debit balance.

• Appears in the operating expenses section of the
  income statement.

• It is an expense for anticipated uncollectible
  accounts.

• There are many methods for determining the
  amounts to be used for this adjusting entry,
  including the percentage of net sales on account.

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Determine Uncollectible Accounts Expense using a
percentage of net sales on account
Fashion World estimates 0.3 of their net credit
sales of 210,000 will be uncollectible.
Revenue x 0.3 Uncollectible Expense 210,000 x
0.3 630
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ALLOWANCE FOR DOUBTFUL ACCOUNTS

• Contra-Asset Account
• Directly reduces the Accounts Receivable Account
• Has a credit balance
• Appears on the balance sheet

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OBJECTIVE 3 Determine the adjustment for
amortization.
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ADJUSTMENT FOR AMORTIZATION

• Amortization is recorded for long-term assets.

• A long-term asset is defined as having a useful
  life of more than one year.

Amortization allocates the value of long-term
assets over their useful life. For example, if
an asset has a useful life of five years, we
would calculate the total amortization over a
five year period.
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AMORTIZATION OF STORE EQUIPMENT
STORE EQUIPMENT
12,000 (COST)
1,500 (SALVAGE VALUE)
2,100 (YEARLY AMORTIZATION)
5 YEARS (USEFUL LIFE)
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AMORTIZATION OF OFFICE EQUIPMENT
OFFICE EQUIPMENT
3,000 (COST)
500 (SALVAGE VALUE)
600 (YEARLY AMORTIZATION)
5 YEARS (USEFUL LIFE)
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OBJECTIVE 4 Determine the adjustment for
accrued and prepaid expenses.
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ADJUSTMENT FOR ACCRUED EXPENSE

• Accrued expenses are expenses for the current
  period that have not been paid. An adjustment
  will be made in order to record the expenses in
  the proper fiscal period.

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ACCRUED EXPENSES

• Fashion World has three accrued expenses that
  require adjustments
• Accrued Salaries
• Accrued Payroll Taxes
• Accrued Interest on Notes Payable

• These items are expenses that will be paid in a
  later period.

• To record these items, the expense account is
  debited and the liability account is credited.

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ACCRUED WAGES

• Fashion World has part-time sales employees who
  are paid every Friday.

• December 31, 20X4 falls on Wednesday. Payday is
  not until Friday. We have three days worth of
  expenses for 20X4 that will not be paid until
  January 20X5.

• The Sales Salaries Expense for these three days
  needs to be recorded in 20X4.

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ACCRUED INTEREST ON NOTES PAYABLE

• On December 1, 20X4 Fashion World borrowed
  3,000.00 from the bank and promised to repay
  this amount in two months plus an additional 6
  in interest charges.

• The interest expense accumulates daily but in
  this case is not to be paid until the 3,000.00
  is repaid at the end of the two months.

• On December 31, one months worth of interest has
  accumulated.

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FORMULA FOR CALCULATING INTEREST
Principle X Rate X Time Interest
3,000 X 6/100 X 30/365
14.79
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OBJECTIVE 5 Determine the adjustment for
accrued income and unearned income.
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ACCRUED INCOME

• Accrued income is income that has been earned but
  not yet received or recorded.

• The appropriate revenue account must be credited
  to increase its balance even though the amount
  will not be collected until a later period.

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UNEARNED OR DEFERRED INCOME

• Any portion of a firms income that has been
  received but not earned during a fiscal period
  should not be reported on the income statement
  prepared for the period.

• The amount should be reported as income in the
  period when it is earned.

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UNEARNED OR DEFERRED INCOME
The following is an example of a magazine
publisher

• When the publisher first receives income from
  subscriptions, it is unearned.

• The subscriptions represent a liability because
  the publisher has an obligation to provide the
  magazines during the specified period of time.

• As the magazines are sent to the subscribers, the
  income is gradually earned and the liability
  decreases.

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OBJECTIVE 6 Complete a 10-column worksheet.
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FASHION
WORLD

Worksheet (Partial)

Year Ended December 31, 20X4
ACCOUNT NAME
TRIAL BALANCE
ADJUSTMENTS

DEBIT CREDIT
DEBIT CREDIT
Telephone Expense
2,720.99
Uncollectible Accounts Expense

(b) 630.00
Interest Expense
359.01
(g) 75.94



Totals

502,835.77 502,835.77
12,713.94 12,713.94 Net
Income
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