CHAPTER THREE

ACCOUNTING FOR MERCHANDISE BUSINESSES

3.1 Characteristics of Merchandising Business:
The activities of a service business differ from those of a merchandising business. The revenue activities of a
service business involve providing services to customers. On the income statement for a service business, the
revenues from services are reported as fees earned. The operating expenses incurred in providing the services are
subtracted from the fees earned to arrive at net income.
In contrast, the revenue activities of a merchandising business involve the buying and selling of merchandise. A
merchandising business first purchases merchandise to sell to its customers. When this merchandise is sold, the
revenue is reported as sales, and its cost is recognized as an expense. This expense is called the cost of merchandise
sold. The cost of merchandise sold is subtracted from sales to arrive at gross profit. This amount is called gross
profit because it is the profit before deducting operating expenses. Merchandise on hand (not sold) at the end of an
accounting period is called merchandise inventory. Merchandise inventory is reported as a current asset on the
balance sheet.
Merchandise consists of products, also called goods that a company acquires to resell to customers. A
merchandiser earns net income by buying and selling merchandise. Merchandisers are often identified as either
wholesalers or retailers. A wholesaler is an intermediary that buys products from manufacturers or other
wholesalers and sells them to retailers or other wholesalers. A retailer is an intermediary that buys products from
manufacturers or wholesalers and sells them to consumers. Many retailers sell both products and services.
3.1.1 Comparison of Financial Statements for Merchandising and Service Businesses
Service Business Merchandising Business
Revenues - Expenses = Net Income or Net Loss Net Sales - CGS= Gross Profit - Expenses = Net Income/Net Loss
3.1.2 Inventory Systems;
Two alternative inventory accounting systems can be used to collect information about cost of goods sold and cost
of inventory; (the perpetual system or periodic system).
 Under the periodic inventory system, the inventory records do not show the amount available for sale or the
amount sold during the period. The periodic inventory system updates the accounting records for merchandise
transactions only at the end of a period. Under this system; Purchases of merchandise are debited to Purchases;
Ending Inventory determined by physical count; At the time of sale no need of recording CGS and Calculation
of Cost of Goods Sold is;
Beginning Inventory xx
Add Net Cost of Purchases xx
Merchandise Available for Sale xxx
Less Ending Inventory (xx)
Cost of Goods sold xxx
 Under the perpetual inventory system of accounting, each purchase and sale of merchandise is recorded in the
inventory and the cost of merchandise sold accounts. As a result, the amounts of merchandise available for sale
and sold are continuously (perpetually) updated in the inventory records. The perpetual inventory system
continually updates accounting records for merchandising transactions – specifically, for those records of
inventory available for sale and inventory sold. Under this system; there is continuous record of inventory and

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 cost of goods sold to disclose the amount of the inventory; purchases of merchandise and freight-in should be
debited to inventory; purchase returns and allowances and purchase discounts are credited to inventory; cost of
goods sold is debited and inventory is credited for each sale; subsidiary records show quantity and cost of each
type of inventory on hand; the cost of merchandise sold will be recorded each time a sale is made and physical
inventory is taken to compare the records with the actual quantities on hand.
 Cost of goods sold is the cost of merchandise sold to customers during a period.
 Inventory refers to products a company owns and expects to sell in its normal operations.
 Merchandise available for sale consists of what it begins with (beginning inventory) and what it purchases
(net cost of purchases).
 The merchandise available is either sold (cost of goods sold) or kept for future sales (ending inventory).
3.2 Accounting for Merchandise Purchases:
3.2.1) Accounting for Merchandise Purchases Under Periodic System:
A periodic inventory system requires updating the inventory account only at the end of a period to reflect the
quantity and cost of both the goods available and the goods sold. Thus, during the period, the merchandise inventory
balance remains unchanged. It reflects the beginning inventory balance until it is updated at the end of the period.
During the period the cost of merchandise is recorded in a temporary purchase account. When a company sells
merchandise, it records revenue but not the cost of the goods sold. At the end of the period when a company
prepares financial statements, it takes a physical count of inventory by counting the quantities and costs of
merchandise available. The cost of goods sold is then computed by subtracting the ending inventory amount from
the cost of merchandise available for sale.
Under a periodic system, each purchase, purchase return and allowance, purchase discount, and transportation-in
transaction is recorded in a separate temporary account. At period-end, each of these temporary accounts is closed
and the merchandise account is updated.
Example -1: Assume ABC Company purchased merchandise inventory Birr 10,000 from Yahoo Compan
y on December-1, 2008 for cash and Birr 100,000 from Yahoo Company on December-2, 2008, term
2/10, n/30. The entry will be;
Date Explanation Debit Credit
December- Purchase 10,000
1, 2008 Cash 10,000
(Purchased merchandise on cash) 60)
December- Purchase 100,000
2, 2008 Accounts Payable - Marathon Company 100,000
(Purchased merchandise, terms 2/10, n/30)
Example -2: Assume Hanlon Retail purchased Birr 30,000 of merchandise on credit on May-4, 2005 terms 2/15,
n/60 and on May-21, 2005 purchased Birr 20,000 of merchandise for cash from Marathon Company. The entry
will be;
Date Explanation Debit Credit
May-4, 2005 Purchase 30,000
Accounts Payable - Marathon Company 30,000
(Purchased merchandise, terms 2/10, n/60)
May-21, 2005 Purchase 20,000
Cash 20,000
(Purchased merchandise on cash)
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Example -3: Assume ABC Company bought goods worth Birr 50,000 from XYZ Company on account on
January-14, 2001, terms 1/10, n/60. Assume that ABC Company, a portion of the goods worth Birr 5,000 bought on
January-14 from XYZ Company was of the wrong size. XYZ Company acknowledged this and gave ABC
Company a 5% price allowance on January-17. ABC Company paid on January-24, 2001. Record the transactions
on both dates.
Date Explanation Debit Credit
January-14, Purchase 50,000
2001 A/P – XYZ Company 50,000
(Record Purchase On credit)
January-17, A/P – (5%*5,000) 250
2001 Purchase return & Allowance 250
(Record Purchase return & Allowance)
January-24, Accounts Payable – XYZ Company 49,750
2001 Cash 49,252.5
Purchase discount 497.5
(Record Purchase on Credit -1/10, n/60 term with in discount)
Example -4: Assume Delina Company purchased merchandise inventory Birr 500,000 from Axumite Company
on January-1, 2006 term 1/10, n/30. Axumite Company returned defective items of Birr 10,000 to Delina Company
on January-3, 2006. Delina Company made price allowance of Birr 3,000 for those additional defective items of
Birr 5,000 to Axumite Company of January-5, 2006 and if Axumite Company paid the remaining amount on
January-11 and 12, 2006;
Date Explanation Debit Credit
January-1, Purchase 500,000
2006; A/P – Axumite Company 500,000
(Record Purchase On credit)
January-3, A/P 10,000
2006; Purchase return & Allowance 10,000
(Record Purchase return & Allowance)
January-5, A/P 3,000
2006; Purchase return & Allowance 3,000
(Record Purchase return & Allowance)
January-11, Accounts Payable – Axumite Company 487,000
2006; Cash 482,130
Purchase discount 4,870
(Record Purchase on Credit -1/10, n/60 term with in discount)
January-12, Accounts Payable – Axumite Company 487,000
2006; Cash 487,000
(Record Purchase on Credit -1/10, n/60 term out of discount)
3.2.2) Accounting for Merchandise Purchases Under Perpetual System:
Under Perpetual Method, each purchase and sale of merchandise is recorded in the inventory and the cost of
merchandise sold accounts. The amount of merchandise available for sale and the amount sold are continuously
disclosed in the inventory records. The cost of merchandise purchased for resale is recorded in the Merchandise
Inventory asset account.
Example -5: Assume on January-3, 2011; Net Solutions purchased merchandise for cash from Bowen Company
Birr 2,510. The journal entry will be;
Date Explanation Debit Credit
January-3, Merchandise Inventory 2,510
2011 Cash 2,510
(Purchase of Merchandise Inventory for Cash)

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Note: the amount recorded for merchandise inventory includes its purchase cost, shipping fees, taxes, and any other
costs necessary to make it ready for sale.
Purchase Discount: The purchase of goods on credit requires a clear statement of expected future payments
and dates to avoid misunderstandings. The arrangement agreed upon by the buyer and seller as to when
payments are to be made are called Credit terms. Credit terms for a purchase include the amounts and timing
of payments from a buyer to a seller. Many businesses frequently grant a cash discount to customers who will
pay promptly for goods purchased on credit.
For Example; when sellers require payment within 10 days after the end of the month of the invoice date, the
invoice will show credit terms of “n/10 EOM,” which stands for net 10 days after end of month (EOM). When
sellers require payment within 30 days after the invoice date, the invoice shows credit terms of “n/30,” which stands
for net 30 days. The amount of time allowed before full payment is due is called the credit period. Sellers can grant
a cash discount to encourage buyers to pay earlier. A buyer views a cash discount as a purchase discount. A seller
views a cash discount as a sales discount. Any cash discounts are described in the credit terms on the invoice. For
Example; credit terms of “2/10, n/60” mean that full payment is due within a 60-day credit period, but the buyer
can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date. This reduced payment
applies only for the discount period.
Example -6: Assume on March-12, 2011; Alpha Technologies issues an invoice for Birr 3,000 to Net Solutions
dated with terms 2/10, n/30. What are the last day the invoice can be paid and the entry to record the purchase?
What is the journal entry for the purchase on March-12 and for the payment if on March-22 or April-11?
Invoice period 30 The full
Days in March 31 amount is due
Date of invoice 12 on April-11.
Remaining days 19
April 11

Date Explanation Debit Credit

March-12, Merchandise Inventory 3,000
2011 Accounts Payable – Alpha Technologies 3,000
(Purchased merchandise on credit, invoice dated Mar. 12, terms 2/10, n/30)
March-22, Accounts Payable – Alpha Technologies 3,000
2011 Cash 2,940
Merchandise Inventory 40
(Paid for the Birr 3,000 purchase of Mar-12 less the discount of 2%)
April-11, Accounts Payable – Alpha Technologies 3,000
2011 Cash 3,000
(Paid the full amount Birr 3,000 for the purchase of Mar. 12)
Purchases Returns and Allowances: A buyer may return merchandise (purchases return) or request a price
allowance (purchases allowance) from the seller. In both cases, the buyer normally sends the seller a debit
memorandum. A debit memorandum, often called a debit memo. A debit memo informs the seller of the
amount the buyer proposes to debit to the account payable due the seller. It also states the reasons for the return
or the request for the price allowance. The buyer may use the debit memo as the basis for recording the return
or allowance or wait for approval from the seller (creditor). In either case, the buyer debits Accounts Payable
and credits Merchandise Inventory.

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  Purchase return: Refers to merchandise a buyer acquires but then returns to the seller. A purchases
return involves actually returning merchandise that is damaged or does not meet the specifications of the
order.
 Purchase allowance: Refers to a reduction in the cost of defective or unacceptable merchandise that a
buyer acquires. When the defective or incorrect merchandise is kept by the buyer and the vendor makes a
price adjustment, this is a purchases allowance. When a buyer returns or takes an allowance on
merchandise, the buyer issues a debit memorandum to inform the seller of a debit made to the seller’s
account in the buyer’s record.
Example -7: Assume on March-7, 2011; Net Solutions received the delivery from Maxim Systems and determined
that Birr 900 of the items was not the merchandise ordered. Debit memorandum #18 is issued to Maxim Systems.
Date Explanation Debit Credit
March- Accounts Payable - Maxim Systems 900
7 Merchandise Inventory 900
(Debit Memo No.18 –Purchase Return )
Example -8: Assume on May-2, 2011; Net Solutions purchased Birr 5,000 of merchandise from Delta Data Link,
subject to terms 2/10, n/30. On May-4, 2011 Net Solutions returns Birr 3,000 of the merchandise. On May-12, Net
Solutions pays the amount due. The entry to record this;
Date Explanation Debit Credit
May-2, 2011 Merchandise Inventory 5,000
Accounts Payable – Delta Data 5,000
(Purchased merchandise on credit, invoice dated May-2, terms 2/10, n/30)
May-4, 2011 Accounts Payable – Delta Data 3,000
Merchandise Inventory 3,000
(Returned portion of Merchandise Purchased)
May-12, 2011 Accounts Payable – Alpha Technologies 2,000
Cash 1,960
Merchandise Inventory 40
(Paid invoice; (5,000 – 3,000) x 2%)
Note: When goods are returned, a buyer can take a purchase discount on only the remaining balance of the invoice.
3.2.3) Comparison of Periodic and Perpetual Inventory System: Examples;
Purchases: The periodic system uses a temporary purchase account that accumulates the cost of all purchase
transactions during each period.
Example -9: Assume on Feburaury-1, 2011; Net Solutions purchased merchandise for Birr 1,200 on credit with
terms of 2/10, n/30 is recorded as follows:
Periodic Inventory System Perpetual Inventory System
Date Explanation Debit Credit Explanation Debit Credit
Feburaury- Purchases 1,200 Merchandise Inventory 1,200
1, 2011 Accounts Payable 1,200 Accounts Payable 1,200
(To Record Purchase of Inventory on Credit) (To Record Purchase of Inventory on Credit)
Purchase Discounts: The periodic system uses a temporary purchase discounts account that accumulates
discounts taken on purchase transactions during the period. If payment is delayed until the discount period
expires, full amount should be paid and the entry is to debit Accounts Payable and credit cash for Birr 1,200
each.
Example -10: Assume on Feburaury-10, 2011 Net Solutions pays the supplier for the previous purchase in
Feburaury-1, 2011.

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 Periodic Inventory System Perpetual Inventory System
Date Explanation Debit Credit Explanation Debit Credit
Febura Accounts Payable 1,200 Accounts Payable 1,200
ury-10, Purchase Discount 24 Merchandise Inventory 24
2011 Cash 1,176 Cash 1,176
(Record payments -1,200*98% =1,176) (Record payments -1,200*98% =1,176)
Purchase Returns and Allowances: Net Solutions returned merchandise purchased on November 2 because
of defects. In the periodic system, the temporary purchase returns and allowances account accumulates the cost
of all returns and allowance during a period.
Transportation-in: FOB shipping point agreement implies to be covered the transportation/freight costs by
the buyer and FOB destination implies to be covered the transportation/delivery costs by the seller.
Example -11: Assume Feburaury-13, 2011 Net Solution purchase Merchandise Inventory Birr 16,000 from Magna
Delta Company term of 1/10, n/60 FOB shipping point. Feburaury-14, 2011 Net Solution returns Merchandise
Inventory Birr 3,000 which was defective merchandise from Merchandise Inventory of Birr 16,000 and paid
transportation Birr 75. The entry to record returns will be;
Periodic Inventory System Perpetual Inventory System
Date Explanation Debit Credit Explanation Debit Credit
Feburaury- Accounts Payable 3,000 Accounts Payable 3,000
14, 2011 Purchase Returns and Allowance 3,000 Merchandise Inventory 3,000
(Record Purchase Returns & Allowances) (Record Purchase Returns & Allowances)
Transportation-in 75 Merchandise Inventory 75
Cash 75 Cash 75
(Record Transportation Cost) (Record Transportation Cost)
3.3 Accounting for Merchandise Sales:
Merchandising companies also must account for sales, sales discount, sales return and allowances, and cost of goods
sold. Each sales transaction for a seller of merchandise involves two parts. These parts are; (1) the revenue received
in the form of an asset from a customer, and (2) the recognition of the cost of merchandise sold to a customer.
3.3.1) Accounting for Merchandise Sales Under Perpetual System:
Accounting for a sales transaction under the perpetual system requires recording information about both parts. This
means that each sales transaction for merchandisers, whether for cash or on credit, requires two entries: One for
revenue and one for cost. Using the perpetual inventory system, the cost of merchandise sold and the decrease in
merchandise inventory are also recorded.
Cash Sales: A business may sell merchandise for cash. Cash sales are normally entered (rung up) on cash
register and recorded in the accounts.
Example -12: Assume on January-3, 2011 Net Solution sold merchandises costing Birr 1,200 for Birr 1,800 cash to
Awash Company. The entry will be;
Date Explanation Debit Credit
January- Cash 1,800
3, 2011 Sales 1,800
(To Record Cash Sales)
January- Cost of Merchandise Sold 1,200
3, 2011 Merchandise Inventory 1,200
(To record the cost ofmerchandise sold)
Sales on Account: A business may sell merchandise on account. The seller records such sales as a debit to
Accounts Receivable and a credit to Sales.

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Example -13: Assume on January-5, 2011 Net Solutions sold to Sims Company merchandise Birr 510 on account.
The cost of the merchandise sold was Birr 280 and on January-16, 2011 Net Solutions receives the amount from
Sims Company. The entry will be;
Date Explanation Debit Credit
January-5, Accounts Receivable - Sims Company 510
2011 Sales 510
(To Record Credit Sales)
January-5, Cost of Merchandise Sold 280
2011 Merchandise Inventory 280
(To record the cost of merchandise sold)
Cash 510
Accounts Receivable - Sims Company 510
(To Record Cash Receipt from Credit Sales)
Sales Discounts: The terms of a sale are normally indicated on the invoice or bill that the seller sends to the
buyer. The terms for when payments for merchandise are to be made are called the credit terms. If payment is
required on delivery, the terms are cash or net cash. Otherwise, the buyer is allowed an amount of time, known
as the credit period, in which to pay.
The credit period usually begins with the date of the sale as shown on the invoice. If payment is due within a stated
number of days after the invoice date, such as 30 days, the terms are net 30 days. These terms may be written as
n/30. If payment is due by the end of the month in which the sale was made, the terms are written as n/EOM. To
encourage the buyer to pay before the end of the credit period, the seller may offer a discount. Example: a seller
may offer a 2% discount if the buyer pays within 10 days of the invoice date. If the buyer does not take the discount,
the total amount is due within 30 days. These terms are expressed as 2/10, n/30 and are read as 2% discount if paid
within 10 days, net amount due within 30 days.
Sales discount on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future
collection efforts. At the time of credit sale, a seller does not know whether a customer will pay within the discount
period and take advantage of a purchase discount. This means the seller usually does not record a sales discount
until a customer actually pays within the discount period.
Credit Terms Explanation of Credit Terms Amount to be paid
Invoice for Birr 1,500, If invoice is paid within 10 days of invoice date Birr 1,470 paid (2% cash discount)
Terms: 2/10, n/30 If invoice is not paid within 10 days of invoice Birr 1,500 paid (full amount)
Example -14: Assume on January-10, 2011 Net Solutions sold merchandise inventory cost of Birr 100,000 for Birr
180,000, term 1/10, n/30 and receives the amount due from Sims Company on January-22, 2011. The entry will be;
Date Explanation Debit Credit
January- A/R - Sims Company 180,000
10, 2011; Sales 180,000
(To Record Sales term 1/10, n/30)
January- CGS 100,000
22, 2011; Inventory 100,000
(To Record CGS)
January-10, Cash 178,200
2011 Sales Discount 1,800
Accounts Receivable - Sims Co 180,000
(Received payment for Jan-12 sale less discount)
Note: sales discount is a contra revenue account that is deducted from the sales account when computing company’s
net sales.

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 Sales Returns and Allowances: Merchandise sold may be returned to the seller (sales return). In other cases,
the seller may reduce the initial selling price (sales allowance). This might occur if the merchandise is defective,
damaged during shipment, or does not meet the buyer’s expectations. If the return or allowance is for a sale on
account, the seller usually issues the buyer a credit memorandum, often called a credit memo. A credit memo
authorizes a credit to (decreases) the buyer’s account receivable. A credit memo indicates the amount and
reason for the credit.
Like sales discounts, sales returns and allowances reduce sales revenue. Also, returns often result in additional
shipping and handling expenses. Thus, managers usually want to know the amount of returns and allowances for a
period. For this reason, sales returns and allowances are recorded in a separate sales returns and allowances account,
which is a contra (offsetting) account to Sales. The seller debits Sales Returns and Allowances for the amount of the
return or allowance. If the sale was on account, the seller credits Accounts Receivable. Using a perpetual inventory
system, the seller must also debit (increase) Merchandise Inventory and decrease (credit) Cost of Merchandise Sold
for the cost of the returned merchandises?
 Sales Return: Refers to merchandise that customers return to the seller after a sale. Many companies allow
customers to return merchandise for a full refund.
 Sales Allowance: Refers to reductions in the selling price of merchandise sold to customers. This can occur
with damaged or defective merchandise that a customer is willing to purchase with a decrease in selling
price. If there is a defect in the product or the wrong item was shipped, the seller may reduce the initial
price at which the goods were sold. This is known as a sales allowance. Sales returns and allowances
usually involve dissatisfied customers and the possibility of lost future sales, and managers need
information about returns and allowances to monitor these problems.
Example -15: Assume on Jamuary-12, 2011 Net Solutions sold merchandise for Birr 255 that had cost Birr 140 to
ABC Company. ABC Company returns the merchandise inventory on January-13, 2011. The entry will be;
Date Explanation Debit Credit
January-12, 2011 Accounts Receivable - ABC Company 255
Sales 255
(To Record Credit Sales)
January-12, 2011 Cost of Merchandise Sold 140
Merchandise Inventory 140
(To record the cost of merchandise sold)
January-13, 2011 Sales Returns and Allowances 255
Accounts Receivable – ABC Company 255
(Record Sales Returns and Allowances)
January-13, 2011 Merchandise Inventory 140
Cost of Merchandise Sold 140
(Record Cost of merchandise returned – Credit sale )
Example -16: Assume on January-15, 2002; Net Solutions sold merchandise for Birr 2,400 that had cost Birr 1,600
to its customer. Assuming that the customer returns part of the merchandise on January-15, 2002; and the returned
items sell for Birr 800 and cost Birr 600. If the merchandise returned to Net Solutions is not defective and can be
resold to another customer, the entry will be;
Date Explanation Debit Credit
January-15, 2011 Accounts Receivable - ABC Company 2,400
Sales 2,400
(To Record Credit Sales)

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 Cost of Merchandise Sold 1,600
Merchandise Inventory 1,600
(To record the cost of merchandise sold)
January-15, 2011 Sales Returns and Allowances 800
Accounts Receivable – ABC Company 800
(Record Sales Returns and Allowances)
Merchandise Inventory 600
Cost of Merchandise Sold 600
(Record Cost of merchandise returned – Credit sale )
Note that: if the goods returned are defective-that is, the returned inventory is recorded at its estimated value, not
its cost.
Example -17: Assume on January-15; if the goods costing Birr 600 returned to Net Solutions are defective
and estimated to be worth Birr 150, the following entry is made;
Date Explanation Debit Credit
January-15, Merchandise Inventory 150
2011 Loss from Defective Merchandise 450
Cost of Merchandise Sold 600
(Returned Goods Added To Inventory & Defective Portion)
Example -18: Assume that Birr 800 of the merchandise Net Solutions sold on January-15, 2011 is defective but the
buyer decides to keep it because Net Solutions offers a Birr 100 price reduction. Net Solutions records the
allowance and decreases expected assets as follows;
Date Explanation Debit Credit
January- Sales Return and Allowance 100
15, 2011 Accounts Receivable 100
(Returned Sales Returned – from January-15, 2011 sale)
Note: The seller usually prepares a credit memorandum to confirm a buyer’s return or allowance. A seller’s credit
memorandum informs a buyer of the seller’s credit to the buyer’s Account Receivable (on the seller’s book).
Sales Taxes: Almost all states levy a tax on sales of merchandise. The liability for the sales tax is incurred when
the sale is made. At the time of a cash sale, the seller collects the sales tax. When sale is made on account, the
buyer is charged for the tax. The seller credits the sales account for only amount of sale and credits the tax to
sales tax payable (for the buyer).
Example -19: Assume on January-20, 2011, Net Solutions sold merchandise for Birr 100 to Lemon Company on
account. The state has a 6% sales tax. The entry will be;
Date Explanation Debit Credit
January-20, Accounts Receivable - Lemon Company 106
2011 Sales 100
Sales Taxes Payable 6
(Record sales and Sale Taxes)
Example -20: Assume on Feburaury-20, 2011; Net Solutions sends in a payment of Birr 2,900 to the taxing unit for
the January taxes collected. The entry will be;
Date Explanation Debit Credit
Feburaury- Sales Tax Payable 2,900
20, 2011; Cash 2,900
(Payment for sales taxes collected during August)
Example -21: Assume Yahoo Company sold merchandise inventory cost of Birr 28,000 for Birr 40,000 to Delina
Company on December-1, 2011 for cash, sold merchandise inventory cost of Birr 250,000 for Birr 300,000 to
Delila Company on December-2, 2011, term, 1/10, n/60, received Birr 100,000 merchandise inventory returned on
December-4, 2011 which costs were Birr 85,000, made price adjustment of Birr 10,000 for those additional

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defective items of Birr 25,000 which costs were Birr 17,000 and received payment from Delila Company on
December-11, 2011 and received payment on December-12, 2011. The entry will be;
Date Explanation Debit Credit
December-1, Cash 40,000
2011; Sales 40,000
(To Record Purchase of Merchandise Inventory for Cash)
CGS 28,000
Inventory 28,000
(To Record CGS)
December-2, A/R - Delila Company 300,000
2011; Sales 300,000
(To Record Credit Sales, term 1/10, n/60)
CGS 250,000
Inventory 250,000
(To Record CGS)
December-4, Sales Return & Allowance 100,000
2011; A/R - Delila Company 100,000
(To Record Sales Return & Allowance - Returned)
Inventory 85,000
CGS 85,000
(To Record CGS Returned)
December-6, Sales Return & Allowance 10,000
2011; A/R - Delila Company 10,000
(To Record Sales Return & Allowance – Allowances )
Inventory 17,000
CGS 17,000
(To Record CGS Returned)
December-11, Cash 188,100
2011; Sales Discount 1,900
A/R - Delila Company 190,000
(To Record Cash Receipt With Discount Period)
December-12, Cash 190,000
2011; A/R - Delila Company 190,000
(To Record Cash Receipt Without Discount Period)
3.3.2) Accounting for Merchandise Sales Under Periodic System:
In the periodic inventory system, sales are recorded in the same manner as in the perpetual inventory system.
However, cost of merchandise sold is not recorded on the date of sale. Instead, cost of merchandise sold is
determined as follows;
Total Cost of Merchandise Purchases is Computed as Follows:
Invoice cost of merchandise purchases xxx
Less: Purchase returns and allowance (xx)
Purchase discount received (xx)
Net purchases xxx
Add: Costs of transportation-in xx
Total Cost of Merchandise Purchases xxx
Total Cost of Merchandise Sold is Computed as Follows:
Merchandise Inventory (beginning) xxx
Invoice cost of merchandise purchases xxx
Less: Purchase discount received (xx)
Purchase returns and allowance (xx)
Net purchases xxx
Add: Costs of transportation-in xx
Total cost of merchandise purchased xxx
Merchandise available for sale xxx
Less: Merchandise Inventory (ending) (xxx)
Cost of Merchandise Sold xxxx
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 Gross Profit is Computed as follows:
Sales xxx
Less: Sales discount (xx)
Sales returns & Allowances (xx)
Net Sales xxx
Less: Cost of Goods Sold (xx)
Gross Profit xxx
Example -22: Assume Yahoo Company sold merchandise inventory Birr 10,000 to ABC Company on December-
1, 2010 for cash, sold merchandise inventory Birr 100,000 to ABC Company on December-2, 2010, term 2/10,
n/30, received Birr 10,000 merchandise inventory returned on December-4, 2010, on December-6, 2010 made price
adjustment of Birr 1,000 for those additional defective items of Birr 2,000 and received payment from ABC
Company on December-11, 2010 for credit sales of December-2, 2010. The entry will be;
Date Explanation Debit Credit
December-1, Cash 10,000
2010; Sales 10,000
(To Record Cash Sales)
December-2, A/R - ABC Company 100,000
2010; Sales 100,000
(To Record Credit Sales – term 2/10, n/30)
December-4, Sales Return & Allowance 10,000
2010; A/R - ABC Company 10,000
(To Record Sales Return & Allowance – Returned )
December-6, Sales Return & Allowance 1,000
2010; A/R - ABC Company 1,000
(To Record Sales Return & Allowance – Allowances )
December-11, Cash 87,220
2010; Sales Discount 1,780
A/R - ABC Company 89,000
December-12, (To Record Cash Receipt With Discount Period)
2010 Cash 89,000
A/R - ABC Company 89,000
(To Record Cash Receipt Without Discount Period)
Example -23: Assume on Feburaury-25, 2011 Net Solutions sold merchandise Birr 16,000 on account with terms
2/10, n/30 to Marathon Company. The cost of the merchandise sold was Birr 9,600. Marathon Company pays the
amount on March-5, 2011. The necessary entry will be;
Date Explanation Debit Credit
Feburaury- Accounts Receivable - Marathon Company 16,000
25, 2011 Sale 16,000
(Record Sales of Merchandise Inventory on Credit)
March-5, 2011 Cash 15,680
Sales Discount 320
Accounts Receivable - Marathon Company 16,000
(Record Cash Reciept)
Example -24: Assume on March-6, 2011 Net Solutions sold merchandise Birr 41,000 on account with terms 1/10,
n/30 to Marathon Company. The cost of the merchandise sold was Birr 22,500. March-7, 2011 Marathon
Company returns merchandise which sales price was Birr 10,000 and their cost was Birr 5,500. Marathon Company
pays the amount on March-16, 2011. The necessary entry will be;
Date Explanation Debit Credit
March-6, 2011 Accounts Receivable - Marathon Company 41,000
Sales 41,000
(Record Sales of Merchandise Inventory on Credit)
March-7, 2011 Sales Return & Allowance - 10,000

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 Accounts Receivable - Marathon Company 10,000
(Record Sales Return & Allowance - Marathon Company)
March-16, Cash 30,690
2011 Sales Discount 310
Accounts Receivable - Marathon Company 31,000
(Record Cash Receipt from - Marathon Company)
3.3.3) Transportation Costs and Ownership Transfer:
The buyer and seller must agree on who is responsible for paying and freight costs and who bears the risk of loss
during transit for merchandising transactions. This is essentially the same as asking at what point ownership
transfers from the seller to the buyer. The point of transfer is called the FOB (free on board) point, which
determines who pays transportation costs (and often other incidental costs of transit such as insurance). There are
two alternative points of transfer:
 FOB Shipping Point: Also called FOB factory, mean the buyer accepts ownership when the goods depart the
seller’s place of business. Title passes to buyer as shipment leaves shipping point. The buyer is responsible for
shipping costs and bearing the risk of damage or loss when goods are in transit. Buyer pays freight costs and
debits Merchandise Inventory. The cost principle requires that any necessary transportation costs of a buyer
(often called transportation-in or freight-in) be included as part of the cost of purchased merchandise. The
goods are part of the buyer’s inventory when they are in transit since ownership has transferred to the buyer.
Example -25: Assume on June-10, 2011; Net Solutions buys merchandise from Magna Data on account, Birr 900,
terms FOB shipping point and pays the transportation cost of Birr 50. The entry under both will be;
Net Solutions (Buyer) Magna Data (Seller)
Date Explanation Debit Credit Explanation Debit Credit
June-10, Merchandise Inventory 900 A/R - Net Solutions 900
2011 Accounts Payable - Magna Data 900 Sales 900
(To Record Purchased merchandise, FOB shipping) (To Record Credit Sales)
June-10, Merchandise Inventory 50
2011 Cash 50 No Entry
(To Record Transportation Cost)
 FOB Destination: Means ownership of goods transfers to the buyer when the goods arrive at the buyer’s place
of business. Title passes to buyer upon arrival at destination. The seller is responsible for shipping charges and
bears the risk of damage or loss in transit. Seller pays freight costs and debits Transportation-Out or fright-
out or delivery expense, reported as selling expense in the seller’s income statement. The seller does not
record revenue from this sale until the goods arrive at the destination because this transaction is not
complete before that point.
Example -26: Assume on June-15, 2011; Net Solutions sells merchandise to Kranz Company on account, Birr
700, terms FOB destination. The cost of the merchandise sold is Birr 480. Net Solutions pays the transportation cost
of Birr 40. The entry under both will be;
Net Solutions (Seller); Kranz Company (Buyer);
Date Explanation Debit Credit Explanation Debit Credit
June-15, A/R - Kranz Company 700 Merchandise Inventory 700
2011 Sales 700 A/P – Net Solution 700
(To Record Credit Sales) (To Record Credit Purchase)
June-15, CGS 480
2011 Merchandise Inventory 480 No Entry
(To Record CGS)
Transportation - out 40

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 Cash 40 No Entry
(To Record Transportation Cost)
Note: The seller may prepay the freight, even though the terms are FOB shipping point. The seller will then add the
freight to the invoice. The buyer debits Merchandise Inventory for the total amount of the invoice, including the
freight. Any discount terms would not apply to the prepaid freight. In addition the buyer may repay the fright even
the term is FOB destination. Under these issues the recording way of freight cost strictly different.
Example -27: Assume Net Solutions sells merchandise on June-20, 2011; to Planter Company on account, Birr
800, terms FOB shipping point. Net Solutions paid freight of Birr 45, which was added to the invoice. The cost of
the merchandise sold is Birr 360. The entry under both (seller & buyer) will be;
Net Solutions (Seller) Planter Company (Buyer)
Date Explanation Debit Credit Explanation Debit Credit
June-20, A/R - Planter Company 800 Inventory
2011 Sales 800 A/P
(Sold Merchandise terms FOB shipping point) (Record Purchase of Inventory on Credit)
June-20, CGS 360
2011 Inventory 360 No Entry To Record CGS
(Recorded CGS to Planter Company)
June-20, A/R - Planter Company Inventory
2011 Cash A/P
(Prepaid shipping cost on merch. Sold) (Record shipping cost)
Example -28: Assume ABC Company bought goods worth Birr 85,000 on account, terms 2/10, n/60; FOB
shipping point on March-2, 2001 from LMM Company. March-2, 2001 - LMM Company was paid transportation
cost of Birr 1,500. ABC Company paid the credit on March-31, 2001 full amount. Record the necessary journal
entries for the buyer & seller for the period of March 2001, assuming perpetual inventory system;
LMM Company (Seller); ABC Company (Buyer);
Date Explanation Debit Credit Explanation Debit Credit
March-2, A/R - ABC Company 85,000 Inventory 85,000
2001 Sale 85,000 A/P 85,000
(Sold Merchandise terms FOB shipping point) (Record Purchase of Inventory on Credit)
March-2, A/R - ABC Company 1,500 Transportation-in 1,500
2001 Cash 1,500 A/P 1,500
(To Record Transportation Costs) (To Record Transportation Costs)
March-31, Cash 86,500 A/P 86,500
2001 A/P 86,500 Cash 86,500
(To Record Full Payment) (To Record Full Payment)
3.3.4) Accounting for Merchandise Transactions Under Seller and Buyer (Examples – Perpetual):
Example -29: Assume on July-1, 2011 Scully Company sold merchandise to Burton Company Birr 11,000 for
cash with terms FOB shipping point. Burton Company paid transportation charges of Birr 500. The cost of the
merchandise sold was Birr 8,000. The entry will be;
Scully Company (Seller); Burton Company (Buyer);
Date Explanation Debit Credit Explanation Debit Credit
July-1, Cash 11,000 Merchandise Inventory 11,000
2011 Sales 11,000 Cash 11,000
(Record Cash Sales) (Record Purchase on Cash)
July-1, Cost of Goods Sold 8,000
2011 Merchandise Inventory 8,000 No Entry To Record CGS
(Record Costs of Merchandise Sold)
July-1, Transportation in 500
2011 No Entry to Record Transportation Cost Cash 500
(Record Transportation Cost)

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 Example -30: Assume on July-2, 2011 Scully Company sold merchandise on account to Burton Company Birr
7,500, terms FOB shipping point, n/45. July-2, 2011 Burton Company paid transportation charges of Birr 150. The
cost of the merchandise sold was Birr 4,500. The entry will be;
Scully Company (Seller); Burton Company (Buyer);
Date Explanation Debit Credit Explanation Debit Credit
July-1, Accounts Receivable - Burton Company 7,500 Merchandise Inventory 7,500
2011 Sales 7,500 Accounts Payable – Scully Com 7,500
(Record Credit Sales) (Record Purchase on Credit)
July-1, Cost of Goods Sold 4,500
2011 Merchandise Inventory 4,500 No Entry To Record CGS
(Record Costs of Merchandise Sold)
July-1, Merchandise Inventory 150
2011 No Entry to Record Transportation Cost Cash 150
(Record Transportation Cost)
Example -31: Assume on July-5, 2011 Scully Company sold merchandise on account to Burton Company Birr
5,000, terms FOB destination point, n/30 and the cost of the merchandise sold was Birr 3,500. July-7, 2011 Scully
Company paid transportation costs of Birr 250 for delivery of merchandise sold to Burton Company on July-5,
2011. July-13, 2011 Scully Company issued Burton Company a credit memorandum for Birr 1,000 of merchandise
returned from a July-5, 2011 purchases on account and the cost of the merchandise was Birr 700. July-15, 2011
Scully Company received payment from Burton Company for the sale of July-5, 2011. The necessary entry;
Scully Company (Seller); Burton Company (Buyer);
Date Explanation Debit Credit Explanation Debit Credit
July-5, Accounts Receivable - Burton Company 5,000 Merchandise Inventory 5,000
2011 Sales 5,000 Accounts Payable – Scully 5,000
(Record Credit Sales) (Record Purchase on Credit)
Cost of Goods Sold 3,500
Merchandise Inventory 3,500 No Entry To Record CGS
(Record Costs of Merchandise Sold)
July-7, Transportation Out 250
2011 Cash 250 No Entry to Record Transportation Cost
(Record Transportation Cost)
July- Sales Return & Allowances 1,000 Accounts Payable – Scully 1,000
13, Accounts Receivable - Burton Company 1,000 Merchandise Inventory 1,000
2011 (Record Sales Return & allowance) (Record Purchase Return & Allowance)
Merchandise Inventory
Cost of Goods Sold No Entry
(Record Costs of Merchandises sold – Returned)
July- Cash 4,000 Accounts Payable - Scully 4,000
15, Accounts Receivable - Burton Com 4,000 Cash 4,000
2011 (Record Cash Receipt) (record Cash Payment)
Example -32: Assume on July-18, 2011 Scully Company sold merchandise on account to Burton Company Birr
12,000, terms FOB shipping point, 2/10, n/EOM. Scully prepaid transportation costs of Birr 500 and the cost of the
merchandise sold was Birr 7,200. July-28, 2011 Scully Company received payment from Burton Company for the
sale of July-18, 2011. The necessary entry will be;
Scully Company (Seller); Burton Company (Buyer);
Date Explanation Debit Credit Explanation Debit Credit
July- Accounts Receivable - Burton Company 12,000 Merchandise Inventory 12,000
18, Sales 12,000 Accounts Payable – Scully 12,000
2011 (Record Credit Sales) (Record Credit Purchases)
Accounts Receivable - Burton Company 500 Merchandise Inventory 500
Cash 500 Accounts Payable – Scully 500
(Record Transportation Cost) (Record Transportation Cost)

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 Cash 12,260 Accounts Payable – Scully 12,500
Sales Discount 240 Merchandise Inventory 240
Accounts Receivable - Burton Company 12,500 Cash 12,260
(Record Cash Receipt Including Transportation) (Record Cash Payment)
3.4 Chart of Accounts for Merchandise Business:
The chart of accounts under a periodic inventory system and the accounts used to record transactions under the
periodic inventory system are highlighted as follow;
Balance Sheet Accounts Income Statement Accounts
100 Assets 400 Revenues 600 Other Income
110 Cash 120 Land 410 Sales 610 Rent Revenue
111 N/R 123 Store Equipment 411 Sales Return 700 Other Expense
112 A/R 124 Accum Dep –Equip Store 412 Sales Discount 710 Interest Expense
115 Inventory 125 Office Equipment 500 Costs & Expenses
116 Supplies 126 Accum Dep –Equip Office 510 Purchases 523 Delivery Expense
117 Insurance 511 Purchases Returns 529 Miscellan Selling Expense
200 Liabilities 300 Owner’s Equity 512 Purchases Discount 530 Office Salaries Expense
210 A/P 310 Chris Clark, Capital 513 Freight In 531 Rent Expense
211 Salary Payable 311 Chris Clark, Drawing 520 Sales Salary Expens 532 Dep Exp Offic Equip
212 Unearned Rent 312 Income Summary 521 Advertising Expense 533 Insurance Expense
215 N/P 522 Dep Exp Stor Equip 534 Supplies Expense
539 Misc Administr Expense
3.5 Financial Statements for Merchandise Business:
The financial statements of merchandiser, and their preparations, are similar to those for a service company
described in earlier chapters. The income statement mainly differs by the inclusion of cost of goods sold and grosses
profit. Also, net sales are affected by discounts, returns, and allowances and some additional expenses are possible
such as delivery expense and loss from defective merchandise. The balance sheet mainly differs by the inclusion of
merchandise inventory as part of current assets. The statement of owner’s equity is unchanged. A work sheet can be
used to help prepare these statements.
 Income Statements Formats: Income statement is a summary of revenues and expenses of a business entity
for a specified of time. There are two widely used formats of income statement; multiple step and single step
income statements.
Multiple-Step Income Statement: A multiple-step income statement format shows detailed computation of net
sales and other costs and expenses, and reports subtotals for various classes of items. The statement has three
main parts:
A) Gross profit, determined by net sales less cost of goods sold,
B) Income from operations, determined by gross profit less operating expenses, and
C) Net income, determined by income from operations adjusted for non operating items.
Operating expenses are classified into two sections. Selling expenses include the expenses of promoting sales by
displaying and advertising merchandise, making sales, and delivering goods to customers. General and
administrative expenses support a company’s overall operations and include expenses related to accounting,
human resource management, and financial management. Note that expenses are allocated between sections when
they contribute to more than one.
Non operating activities consist of other expenses, revenues, losses, and gains that are unrelated to a company’s
operations. They are reported in two sections; (1) Other revenues and gains, which often include interest revenue,

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dividend revenue, rent revenue, and gains from asset disposals; and (2) Other expenses and losses, which often
include interest expense, losses from asset disposals, and casualty losses.
Note: When a company has no reportable non-operating activities, its income from operations is simply labeled net
income.
Example -33: Assume Net Solutions Prepare its financial statements as follows;
Net Solutions; Income Statement; December 31, 2007 – (Multiple Step);
Revenue From Sales:
Sales Birr 720,185
Less: Sales Returns & Allowances Birr 6,140
Sales Discounts 5,790 (11,930 )
Net Sales Birr 708,255
Less: Cost Of Merchandise Sold (525,305)
Gross Profit Birr 182,950
Operating Expenses:
Selling Expenses:
Sales Salaries Expense Birr 56,230
Advertising Expense 10,860
Depreciation Expense–Store Equipment 3,100
Miscellaneous Selling Expense 630
Total Selling Expenses Birr 70,820
Administrative Expenses:
Office Salaries Expense Birr 21,020
Rent Expense 8,100
Depreciation Expense–Office Equipment 2,490
Insurance Expense 1,910
Office Supplies Expense 610
Miscellaneous Administrative Expense 760
Total Administrative Expenses Birr 34,890
Total Operating Expenses (Birr 105,710)
Income From Operations Birr 77,240
Other Income And Expenses:
Rent Revenue 600
Interest Expense (2,440) (1,840)
Net Income Birr 75,400
Note: Cost of Merchandise Purchased is Computed as:
Purchases Birr 521,980
Less: Purchase return & allowance 9,100
Purchase discount 2,525 (11,625)
Net purchases Birr 510,355
Add: Transportation-in 17,400
Cost of merchandise purchased Birr 527,755
Note: Cost of Merchandise Sold is Computed as:
Merchandise Inventory (Beginning) Birr 59,700
Add: Cost of Merchandise Purchased 527,755
Merchandise Available for Sale 587,455
Less: Merchandise Inventory (Ending) (62,150)
Cost of Merchandise Sold Birr 525,305
Single-Step Income Statement for a Merchandising Business: A single-step income statement is another
widely used format that lists cost of goods sold as another expense and shows only one subtotal for total
expenses. Expenses are grouped into very few, if any categories. Many companies use formats that combine
features of both the single-and multiple-step statements.
Net Solutions; Income Statement; December 31, 2007 – (Single Step);
Revenues:
Net Sales Revenues Birr 708,255
Add: Rent Revenue 600
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 Total Revenues Birr 708,855
Expenses:
Cost Of Merchandise Sold Birr 525,305
Selling Expenses 70,820
Administrative Expenses 34,890
Interest Expense 2,440
Total Expenses (Birr 633,455)
Net Income Birr 75,400
Net Solutions; Statement of Owner’s Equity; December 31, 2007;
Chirs Clark, capital, 1/1/07 Birr 153,800
Net income for the year 75,400
Less: Withdrawals (18,000)
Increase in owner’s equity 57,400
Chirs Clark, capital, 12/31/07 Birr 211,200
Net Solutions; Balance Sheet; December 31, 2007;
Assets Liabilities & Owner’s Equity
Current Assets: Current Liabilities:
Cash 52,950 A/P 22,420
Account Receivable 91,080 N/P 5,000
Merchandise Inventory 62,150 Salaries payable 1,140
Office Supplies 480 Unearned rent 1,800
Total Current Assets 206,660 Total current liabilities Birr 30,360
Property, Plant, & Equipment: Long Term Liabilities:
Land 20,000 Note payable (due 2010) 20,000
Store Equipment 27,100 Total Liabilities Birr 50,360
Less: Accumulated Depreciation (5,700) 21,400 Owner’s Equity:
Office Equipment 15,570 Chris Clark, capital 211,200
Less: Accumulated Depreciation (4,720) 10,800 Total Liability & O’s Birr
Total Property, Plant, & Equipment Birr 52,250 Equity 261,560
Total Assets Birr 261,560
3.6 Adjusting and Closing Entries for Merchandise Business:
Adjusting entries are generally the same for merchandising companies and service companies. However, a
merchandiser using a perpetual inventory system is usually required to make another adjustment to update the
merchandise inventory account to reflect any loss of merchandise, including theft and deterioration. Shrinkage is
the term used to refer to the loss of inventory and it is computed by comparing a physical count of inventory with
recorded amounts. A physical count is usually performed at least once annually.
Under the perpetual inventory system, the merchandise inventory account is continually updated for purchase and
sales transactions. As a result, the balance of the merchandise inventory account is the amount of merchandise
available for sale at that point in time. However, retailers normally experience some loss of inventory due to
shoplifting, employee theft, or errors. Thus, the physical inventory on hand at the end of the accounting period is
usually less than the balance of Merchandise Inventory. This difference is called inventory shrinkage or inventory
shortage.
Example -34: Assume Net Solutions’ records indicate on December-31, 2011 account balance of merchandise
inventory Birr 63,950 but physical merchandise inventory reveals that on hand Birr 62,150. At the end of the
accounting period, inventory shrinkage is recorded by the following adjusting entry;
Date Explanation Debit Credit
Dec. 31 Cost of Goods sold 1,800
Merchandise Inventory 1,800
(Adjusting Entry for Inventory shrinkage - 63,950 – 62,150)
After the preceding entry is recorded, the balance of Merchandise Inventory agrees with the physical inventory on
hand at the end of the period. Since inventory shrinkage cannot be totally eliminated, it is considered a normal cost
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of operations. If, however, the amount of the shrinkage is unusually large, it may be disclosed separately on the
income statement. In such cases, the shrinkage may be recorded in a separate account, such as Loss from
Merchandise Inventory Shrinkage.
Example -35: Assume that Net Solution’s merchandise inventory account at the end of the year has a balance of
Birr 21,250, but a physical count reveals that only Birr 21,000 of inventory exists. The adjusting entry to record this
Birr 250 shrinkage is as follows:
Date Explanation Debit Credit
Dec. 31 Cost of Goods sold 250
Merchandise Inventory 250
(To adjust for Birr 250 shrinkage reveled by a physical count
of inventory)
Closing entries for a merchandising business are similar to those for a service business. The four closing entries for
a merchandising business are as follows;
(1) Debit each temporary account with a credit balance, such as Sales, for its balance and credit Income
Summary.
(2) Credit each temporary account with a debit balance, such as the various expenses, and credit Income
Summary. Since Sales Returns and Allowances, Sales Discounts, and Cost of Merchandise Sold are
temporary accounts with debit balances, they are credited for their balances.
(3) Debit Income Summary for the amount of its balance (net income) and credit the owner’s capital account.
The accounts debited and credited are reversed if there is a net loss.
(4) Debit the owner’s capital account for the balance of the drawing account and credit the drawing account
After the closing entries are posted to the accounts, a post-closing trial balance is prepared. The only accounts that
should appear on the post-closing trial balance are the asset, contra asset, liability, and owner’s capital accounts
with balances. These are the same accounts that appear on the end-of-period balance sheet. If the two totals of the
trial balance columns are not equal, an error has occurred that must be found and corrected.
Example -36: Assume Net Solutions’ Closing entries have been presented as follows;
Date Explanation Ref Debit Credit
Sales 410 720,185
Rent Revenue 610 600
Income Summary 312 720,785
(Closing Revenue Accounts)
Income Summary 312 645,385
Sales Returns and Allowances 411 6,140
Sales Discounts 412 5,790
Cost of Merchandise Sold 510 525,305
Sales Salaries Expense 520 53,430
Advertising Expense 521 10,860
Depreciation Expense - Store Equipment 522 3,100
Delivery Expense 523 2,800
Miscellaneous Selling Expense 529 630
Office Salaries Expense 530 21,020
Rent Expense 531 8,100
Depreciation Expense - Office Equipment 532 2,490
Insurance Expense 533 1,910
Office Supplies Expense 534 610
Misc. Administrative Expense 539 760
Interest Expense 710 2,440
(Closing Expense Accounts)
Income Summary 312 75,400
Chris Clark, Capital 310 75,400
(Closing Income Summary Account)
Chris Clark, Capital 310 18,000
Chris Clark, Drawing 311 18,000
(Closing Withdrawal Account)

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