Financial Reporting for a Departmentalized Business

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Chapter 4

• Financial Reporting for a Departmentalized
  Business

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Terms that you need to know

• Fiscal Period
• The length of time which a business summarizes
  and reports financial information.
• Departmental Statement of gross profit
• Provides a statement of revenue an cost
  information for each department.
• Interim departmental statement of gross profit.
• A statement that show revenue and cost
  information for a shorter term than a fiscal
  period.

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Why do we use Departmental statements of gross
profit

• We use it to determine ending merchandise
  inventory.
• Two types of computing inventory
• Periodic
• Physical inventory
• Perpetual
• Book inventory
• We use the gross profit method of estimating an
  inventory with this type of

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Estimating Ending Merchandise inventory

• Calculating Net Purchases and Net Sales
• Purchases Purchase Return and Allowances
  Purchases Discount Net Purch.
• Sales Sales Return and Allowance Sales
  Discount Net Sales

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4-2 Preparing a Worksheet for a Departmentalized
Business

• Proving Accuracy between what our Accounts
  Payable/Receivable accounts in our general ledger
  say versus what our schedule of accounts
  payable/receivable say.
• Remember that it is a check to make sure that
  there is balance between these accounts and the
  records we keep.

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The worksheet has many functions first and
foremost it is used to make sure that the general
ledger is balanced from the trial balance columns
on the worksheet
Then we do our wonderful adjustments remember
that we do this to bring accounts up to date that
may have changed throughout the year or month.
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Just what you wanted some more adjustments

• Uncollectible Accounts expense Adjustment-
  sometimes items are sold on account to customers
  who later cannot be collected from customers are
  business expenses.
• From past experience that approximately 1 of the
  total sales on account will be uncollectible

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• Because people have not paid us it becomes an
  expense to us at the end of the year.
• We also have to add it to the amount in which we
  allow not to be collected for the year.

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Review of adjustments and there corresponding
accounts

• Allowance for uncollectible accounts
• Merchandise Inventory golf, tennis
• Supplies office, store
• Accumulated Depreciation store, office equipment

• Uncollectible accounts expense
• Income summary golf, tennis
• Supplies expense office, store
• Depreciation expense store, office equipment

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The only adjustment that is a little different is
Federal income tax expense

• We usually work from the top to the bottom of the
  worksheet, but this time we work from the bottom
  to the bottom.
• Federal Income Tax Expense
• Federal income tax payable
• Please look with me on page 104-105

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Why the worksheet

• Check the balance of the general ledger
• Bring up to date accounts- using adjustments
• Determine what goes on what sheet- Income
  statement, balance sheet (does the income summary
  account remind you of anything?
• Determine net income.

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Net Income and making sure that both the debit
and the credit are in balance from both columns
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4-3 Financial Statements for a Departmentalized
Business

• The 4 financial statements that you will prepare
• Departmental Statement of Gross Profit
• Income Statement
• Statement of Stockholders Equity
• Balance sheet

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Departmental Statement of Gross Profit

• Used to help us determine the actual ending
  periodic inventories for each department

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Income statement

• Please look on page 114
• Remember that the bottom line needs to match the
  bottom line on the worksheet.
• You are also using the Statement of gross profit
  to fill in some of the blanks but also to help
  check your numbers.
• For example net sales should equal what you have
  on your statement of gross profit.

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Statement of Stockholders Equity

• 2 major sections
• Capital Stock
• Total shares of ownership in a corporations.
• Retained Earnings
• An amount earned by a corporation and not yet
  distributed to stockholders

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This is the number that we use to carry over to
the Balance Sheet
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3 more things to do to end out the fiscal period.

• Adjusting entries
• Remember those entries are exactly like what we
  do on the worksheet.
• Closing Entries
• This is new for us.
• Let look at what we need to do with this.

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Closing Entries from accounting I
Accounting II
Accounting I

• Close all of the Credit Side accounts in the
  Income Statement column to Income Summary account
• Close all of the Debit Side accounts in the
  Income Statement column to the Income Summary
  account
• Close the Income Summary Account to the Capital
  Account
• Close Drawing Account to the Capital Account

• Close all of the Credit Side accounts in the
  Income Statement column to Income Summary-General
  account
• Close all of the Debit Side accounts in the
  Income Statement column to Income Summary-General
  account
• Close the Income Summary Account to the Retained
  Earnings
• Close Dividend Account to the Retained Earnings
  Account

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Post-Closing Trial Balance

• This is to make sure that all of the accounts
  that we have open are in balance and ready for
  the next fiscal period.
• Please look on page 122

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Here it is

• Problems 4-1,2,3,4,5,6,8
• Computer Problem 4-7 (you must have 4-5 done
  before you can doe 4-7)