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.
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:
- Are you the buyer or the seller?
- Are there any returns?
- What is the form of payment (cash or on account)?
- Does the discount apply?
- Who is to absorb the transportation cost?
- 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.