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3.6: Closing Entries for Merchandising Accounts

  • Page ID
    43074
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    Six of the seven new accounts appear on the income statement and therefore are closed to Retained Earnings at the end of the accounting period.

    The following June income statement shows these six accounts.

    Screen Shot 2020-05-29 at 1.39.02 PM.png

    The closing entries at the end of June would be as follows:

    Date Account   Debit Credit  
    6/30 Sales   1,000   Sales is a revenue account that is decreasing.
      Retained Earnings     1,000 Retained Earnings is an equity account that is increasing.
               
               
    6/30 Retained Earnings   40   Retained Earnings is an equity account that is decreasing.
      Sales Returns     40 Sales Returns is a contra revenue account that is decreasing.
               
               
    6/30 Retained Earnings   20   Retained Earnings is an equity account that is decreasing.
      Sales Discounts     20 Sales Discounts is a contra revenue account that is decreasing.
               
               
    6/30 Retained Earnings   340   Retained Earnings is an equity account that is decreasing.
      Cost of Merchandise Sold     340 Cost of Merchandise Sold is an expense account that is decreasing.
               
               
    6/30 Retained Earnings   140   Retained Earnings is an equity account that is decreasing.
      Delivery Expense     140 Delivery Expense is an expense account that is decreasing.

    Key questions to ask when dealing with merchandising transactions:

    1. Are you the buyer or the seller?
    2. Are there any returns?
    3. What is the form of payment (cash or on account)?
    4. Does the discount apply?
    5. Who is to absorb the transportation cost?
    6. If the buyer is to absorb the freight cost, did the seller prepay it?
    ACCT 2101 Topics - Merchandising Fact Journal Entry Calculate Amount Format
    Concept of a merchandising business x      
    Concept of a perpetual inventory system x      
    Merchandising income statement: net sales, gross profit, and net income     x x
    Journalize purchase of inventory on account   x x  
    Journalize purchaser’s return of inventory on account   x x  
    Journalize payment on account   x x  
    Journalize payment on account with a discount   x x  
    Journalize purchaser’s payment of transportation charges terms FOB shipping   x x  
    Journalize sale of merchandise on account under perpetual system   x x  
    Journalize return of merchandise on account/for cash under perpetual system   x x  
    Journalize receipt of payment on account   x x  
    Journalize receipt of payment on account with a discount   x x  
    Journalize seller’s payment of transportation charges terms FOB destination   x x  
    Journalize seller’s payment of transportation charges terms FOB shipping   x x  
    Journalize bank charges   x x  
    Financial statements x     x
    Journalize closing entries   x    
    Post closing entries to ledgers     x  

    The accounts that are highlighted in yellow are the new accounts you just learned. Those in pale yellow are the ones you learned previously.

    Screen Shot 2020-05-29 at 3.14.11 PM.png
    Screen Shot 2020-05-29 at 3.18.21 PM.png

    This page titled 3.6: Closing Entries for Merchandising Accounts is shared under a CC BY-SA 4.0 license and was authored, remixed, and/or curated by Christine Jonick (GALILEO Open Learning Materials) via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.