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Chapter 8

Adjustments for

Merchandizing Business:

商业企业会计调整

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The Accounting CycleThe Accounting Cycle

Journalize transactions.

Post entries to the ledger accounts.

Prepare trial balance.

Make end-of-year

adjustments.

Prepare adjusted trial balance.

Prepare financial

statements.

Prepare after closing trial balance.

Journalize and post closing

entries.

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An adjusting entry is recorded to bring an asset or liability account balance to its proper amount.

Adjusting Accounts

Prepaidinsurance

Prepaidinsurance

adjustmentadjustment

Unearnedrevenue

Unearnedrevenue

DepreciationDepreciationSuppliesSupplies

MerchandizeInventory

MerchandizeInventory

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Periodic inventory method 定期盘存制

Expense Account Merchandize inventory

Adjusting(ending inventory)

adjusting

Adjusting(ending inventory)

Purchase amount in This period

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Adjustment for merchandize inventory

A merchandizing business must make adjustment for inventory account when using periodic method to record the inventory.

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Computing Cost of Goods Sold in Periodic Inventory System

The accounting records of Party Supply show the following:

Inventory, Jan. 1, 2003 $ 14,000

Purchases (during 2003) 130,000

The accounting records of Party Supply show the following:

Inventory, Jan. 1, 2003 $ 14,000

Purchases (during 2003) 130,000

At December 31, 2003, Party Supply counted the merchandise

on hand at $12,000.

At December 31, 2003, Party Supply counted the merchandise

on hand at $12,000.

Calculate Party Supply’s cost of goods sold for 2003.

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Computing Cost of Goods Sold in Periodic Inventory System

Inventory (beginning of the year) 14,000$ Add: Purchases 130,000 Cost of goods available for sale 144,000 Less: Inventory (end of year) 12,000 Cost of goods sold 132,000$

Cost of Goods Sold can be calculated as follows:

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Periodic inventory method 定期盘存制

Cost of Good Sold

12/3112000

12/ 3114000

Merchandise inventory

12/ 3114000

1/114000

12/ 3112000

adjusting

closing

Purchases

1/1----12/ 31130000

12/ 31130000

adjusting

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Periodic inventory method 定期盘存制

Income Summary

12/3112000

12/ 3114000

Merchandise inventory

12/ 3114000

1/114000

12/ 3112000

adjusting

closing

Purchases

1/1----12/ 31130000

12/ 31130000

adjusting

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Periodic inventory method 定期盘存制

Income SummaryMerchandise inventory

Adjusting (beginning inventory)

Beginningbalance

Adjusting(ending inventory) adjusting

adjusting

Adjusting(ending inventory)

Purchases

Adjusting (beginning inventory)

Purchase amount in This period

purchase(Inventory bought in

this period)

closing

Step 1

Step 2

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Creating Cost of Goods Sold in Periodic Inventory System

adjust beginning balance of inventory to income summary

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Creating Cost of Goods Sold in Periodic Inventory System

Now, Party Supply must record the ending inventory

amount.

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An item is “material” if knowledge of the item might reasonably influence the

decisions of users of financial statements.

An item is “material” if knowledge of the item might reasonably influence the

decisions of users of financial statements.

Supplies

Lightbulbs

The Materiality Principle (重要性原则）

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GENERAL JOURNAL Page 34Date Description PR Debit Credit

GENERAL JOURNAL Page 34Date Description PR Debit Credit

Dec. 1 Office Supplies 1,500

cash 1,500

Adjusting Supplies

On December 1, 2001, Scott Company paid $1,500 yuan worth of supplies for cash,

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GENERAL JOURNAL Page 34Date Description PR Debit Credit

GENERAL JOURNAL Page 34Date Description PR Debit Credit

Dec. 31 Office Supplies Expense 1,000

Office Supplies 1,000

Adjusting

Adjusting Supplies

On December 31, 2001, Scott Company take a physical count of the supplies and found that

there were 500 yuan worth of supplies left. The adjusting journal entry ($1000) needed on

December 31, 2001 is shown below.

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Adjusting Supplies

After posting, the accounts involved look like this:

Office supplies Office Supplies expense

12/1 $15,00 12/31 $1,00012/31 $1,000

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Prior Periods Current Period Future Periods

TransactionCollected

from customers in

advance (creates a liability).

TransactionCollected

from customers in

advance (creates a liability).

End of Current Period

Adjusting Entry Recognize portion earned as revenue, and Reduce balance of liability account.

Adjusting Entry Recognize portion earned as revenue, and Reduce balance of liability account.

Converting Liabilities to Revenue-- Adjustment for Unearned Revenue

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Adjusting Unearned Revenue (liability)

Cash received in advance for providing

products or services.

Cash received in advance for providing

products or services.

Unearned revenue (liability) Revenue

UnadjustedBalance

CreditAdjustment

DebitAdjustment

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The Accounting CycleThe Accounting Cycle

Journalize transactions.

Post entries to the ledger accounts.

Prepare trial balance.

Make end-of-year

adjustments.

Prepare adjusted trial balance.

Prepare financial

statements.

Prepare after closing trial balance.

Journalize and post closing

entries.

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Assignment

• Problem 3 on page 207

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End of Chapter 8 End of Chapter 8

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