CP:

Adeng Pustikaningsih, M.Si. Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi Universitas Negeri Yogyakarta CP: 08 222 180 1695 Email : adengpustikaningsih@uny.ac.id 1

2 6 Accounting for Merchandising Businesses 2

3 After studying this chapter, you should be able to: 1. Distinguish between the activities and financial statements of service and merchandising businesses. 2. Describe and illustrate the financial statements of a merchandising business. 3

4 After studying this chapter, you should be able to: 3. Describe and illustrate the accounting for merchandise transactions including: sale of merchandise purchase of merchandise transportation costs, sales taxes, trade discounts dual nature of merchandising transactions. 4. Describe the adjusting and closing process for a merchandising business. 4

5 6-1 Objective 1 Distinguish between the activities and financial statements of service and merchandising businesses. 5

6 6-1 Service Business Fees earned Operating expenses Net income $XXX XXX $XXX 6

7 6-1 Merchandising Business Sales Cost of Merchandise Sold Gross Profit Operating Expenses Net Income $XXX XXX $XXX XXX $XXX 7

8 6-1 When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold. 8

9 6-1 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 the operating expenses. 9

10 6-1 Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory. 10

1-2 6-1 11 Example Exercise 6-1 On August 25, Gallatin Repair Service extended an offer of $125,000 During the for current land that year, had merchandise been priced for is sale sold at for $150,000. On September Rp250,000,000 3, Gallatin cash Repair and for Service Rp975,000,000 accepted the on seller s account. counteroffer The cost of the of $137,000. merchandise On October sold is Rp735,000,000. 20, the land was assessed What at is a the value amount of $98,000 of the for gross property profit? tax purposes. On December 4, Gallatin Repair Service was offered $160,000 for the land by a national retail chain. At what value should the land be recorded in Gallatin Repair Service s records? Follow My Example 6-1 The gross profit is Rp490,000,000 (Rp250,000,000 + Follow Rp975,000,000 My Example Rp735,000,000). 1-1 $137,000. Under the cost concept, the land should be recorded at the cost to Gallatin Repair Service. 11 10 For Practice: PE 6-1A, PE 6-1B 31

12 6-1 1211

13 6-2 Objective 2 Describe and illustrate the financial statements of a merchandising business. 13

14 Multiple-Step Income Statement 6-2 The multiple-step income statement contains several sections, subsections, and subtotals. 14

15 6-2 The Sales account provides the total amount charged to customers for merchandise sold, including cash sales and sales on account. 15

16 6-2 Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise. 16

17 6-2 Sales discounts are granted by the seller to customers for early payment of amounts owed. 17

18 6-2 Net sales is determined by subtracting sales returns and allowances and sales discounts from sales. 18

19 Multiple-Step Income Statement 6-2 SolusiNet Income Statement For the Year Ended December 31, 2009 (in Rp000) Revenue from sales: Sales Rp720,185 Less: Sales returns and allowances Rp 6,140 Sales discounts 5,790 11,930 Net sales Rp708,255 Cost of merchandise sold 525,305 Gross profit Rp182,950 (Continued) 19 18

(In Rp000) 20 Operating expenses: Selling expenses: Sales salaries expense Rp53,430 Advertising expense 10,860 Depr. Expense store equipment 3,100 Delivery Expense 2,800 Miscellaneous selling expense 630 Total selling expenses Rp 70,820 Administrative expenses: Office salaries expense Rp21,020 Rent expense 8,100 Depr. expense office equipment 2,490 Insurance expense 1,910 Office supplies expense 610 Misc. administrative expense 760 Total admin. expenses 34,890 Total operating expenses 105,710 (Continued) Income from operations Rp 77,240 19 20

21 (In Rp000) 6-2 Other income and expenses: Rent revenue Rp 600 Interest expense (2,440) (1,840) Net income Rp75,400 (Concluded) 21 20

22 6-2 Cost of merchandise sold was discussed earlier. It is the cost of the merchandise sold to customers. 22

23 6-2 As we discussed in Slide 16, sellers may offer customers sales discounts for early payment of their bills. From the buyer s perspective, such discounts are referred to as purchase discounts. 23

24 6-2 The buyer may return merchandise to the seller (a purchase return), or the buyer may receive a reduction in the initial price at which the merchandise was purchased (a purchase allowance). 24

25 Cost of Merchandise Sold 6-2 Merchandise Inventory, January 1,2009... Rp 59,700 Purchases Rp521,980 Less: Purchases returns and allowances... Rp9,100 Purchase discounts... 2,525 11,625 Net purchases... Rp510,355 Add transportation in... 17,400 Cost of merchandise purchased... 527,755 Merchandise available for sale... Rp587,455 Less merchandise inventory, December 31, 2009 62,150 Cost of merchandise sold... Rp525,305 25

26 Single-Step Income Statement 6-2 An alternative form of income statement is the single-step income statement. As shown in the next slide, the income statement for SolusiNet deducts the total of all expenses in one step from the total of all revenues. 26

27 Exhibit 3: Single-Step Income Statement 6-2 SolusiNet Income Statement For the Year Ended December 31, 2009 (in Rp000) Revenues: Net sales Rp708,255 Rent revenue 600 Total revenues Rp708,855 Expenses: Cost of merchandise sold Rp525,305 Selling expenses 70,820 Administrative expenses 34,890 Interest expense 2,440 Total expenses 633,455 Net income Rp 75,400 27 26

28 Exhibit 4: Statement of Owner s Equity 6-2 SolusiNet Statement of Owner s Equity For the Year Ended December 31, 2009 (in Rp000) Chris Clark, capital, 1/1/09 Rp153,800 Net income for year Rp75,400 Less withdrawals 18,000 Increase in owner s equity 57,400 Chris Clark, capital, 12/31/09 Rp211,200 28 27

29 Exhibit 5: Report Form of Balance Sheet 6-2 SolusiNet Balance Sheet December 31, 2009 (in Rp000) Assets Current assets: Cash Rp52,950 Accounts receivable 91,080 Merchandise inventory 62,150 Office supplies 480 Prepaid insurance 2,650 Total current assets Rp209,310 (Continued) 29 28

30 Exhibit 5: Report Form of Balance Sheet 6-2 Property, plant, and equip.: Land Rp20,000 Store equipment Rp27,100 Less accumulated depreciation 5,700 21,400 Office equipment Rp15,570 Less accumulated depreciation 4,720 10,850 Total property, plant, and equipment 52,250 Total assets Rp261,560 (In Rp000) (Continued) 30 29

31 Exhibit 5: Report Form of Balance Sheet 6-2 Liabilities Current liabilities: Accounts payable Rp22,420 Note payable (current portion) 5,000 Salaries payable 1,140 Unearned rent 1,800 Total current liabilities Rp 30,360 Long-term liabilities: Note payable (final pmt. due 2017) 20,000 Total liabilities Rp 50,360 Owner s Equity Cinta Cita, capital 211,200 Total liabilities and owner s equity (Concluded) Rp261,560 31 30

32 6-2 Example Exercise 6-2 Based upon the following data, determine the cost of merchandise sold for May. Use the format seen in Exhibit 2. Merchandise Inventory, May 1 Rp121,200,000 Merchandise Inventory, May 31 142,000,000 Purchases 985,000,000 Purchases Returns and Allowances 23,500,000 Purchases Discounts 21,000,000 Transportation In 11,300,000 32 31

33 6-2 Follow My Example 6-2 Merchandise Inventory, May 1 Rp 121,200 Purchases Rp985,000 Less: Purchases returns and allowances Rp23,500 Purchases discounts 21,000 44,500 Net purchases Rp940,500 Add transportation in 11,300 Cost of merchandise purchased 951,800 Merchandise available for sale Rp1,073,000 Less merchandise inventory, May 31 142,000 Cost of merchandise sold Rp 931,000 For Practice: PE 6-2A, PE 6-2B 33 32

34 6-3 Objective 3 Describe and illustrate the accounting for merchandise transactions including: sale of merchandise; purchase of merchandise; transportation costs, sales taxes, trade discounts; dual nature of merchandise transactions. 34

35 Cash Sales 6-3 JOURNAL Post Date Description Ref Debit Credit Jan 2009 3 Cash 1 800 000 Sales 1 800 000 To record cash sales On January 3, SolusiNet sold Rp1,800,000 of merchandise for cash. @solusinet 35

36 Cash Sales (continued) 6-3 Jan 3 Cost of Merchandise Sold 1 200 000 Merchandise Inventory 1 200 000 To record the cost of merch. sold Using a perpetual inventory, the Rp1,200,000 cost of the inventory must be recorded. 36

37 Credit Card Sales 6-3 Jan 3 Credit Card Expense 48 000 Cash 48 000 To record service charges on credit card sales for the month At the end of the month, Rp48,000 was sent to pay the service charge on credit card sales. 37 36

38 Sales on Account Using a Perpetual Inventory 6-3 Jan. 12 Accounts Receivable CV Agung Surya 510 000 Sales 510 000 Invoice No. 7172 12 Cost of Merchandise Sold 280 000 Merchandise Inventory 280 000 Cost of merchandise sold on Invoice No. 7172. On January 12, SolusiNet sold CV Agung Surya merchandise on account, Rp510,000. The cost of the merchandise to the seller was Rp280,000. 38 37

39 Sales Discounts 6-3 The terms for when payments for merchandise are to be made, agreed on by the buyer and the seller, are called credit terms. If buyer is allowed an amount of time to pay, it is known as the credit period. 39

40 Credit Terms 6-3 If invoice is paid within 10 days of invoice date Invoice for Rp1,500,000 Terms: 2/10, n/30 Rp1,470,000 paid (Rp1,500,000 less a 2% discount) 40 39

41 6-3 Invoice for Rp1,500,000 Terms: 2/10, n/30 If invoice is NOT paid within 10 days of invoice date Full amount (Rp1,500,000) is due within 30 days of invoice date 41 40

42 Sales Discounts 6-3 Jan. 22 Cash 1 470 000 Sales Discounts 30 000 Accounts Receivable Omega Tech. 1 500 000 Collection of Invoice No. 106-8, less 2% discount. On January 22, SolusiNet receives the amount due, less the 2 percent discount. 42 41

43 6-3 Jan. 13 Sales Returns and Allowances 225 000 Accounts Receivable-PT Krisna 225 000 Credit Memo No. 32 13 Merchandise Inventory 140 000 Cost of Goods Sold 140 000 Cost of merchandise returned. Credit Memo No. 32. On January 13, issued Credit Memo 32 to PT Krisna for merchandise returned to SolusiNet. Selling price, Rp225,000; cost to SolusiNet, Rp140,000. 43 42

6-3 1-2 44 Example Exercise 6-3 Journalize the following merchandise transactions: a. Sold merchandise on account, Rp7,500,000 with terms of 2/10, n/30. The cost of the merchandise sold was Rp5,625,000. b. Received payment less the discount. 44 43

45 6-3 Follow My Example 6-3 a. Accounts Receivable 7,500,000 Sales 7,500,000 Cost of Merchandise Sold 5,625,000 Merchandise Inventory 5,625,000 b. Cash 7,350,000 Sales Discounts 150,000 Accounts Receivable 7,500,000 For Practice: PE 6-3A, PE 6-3B 45 44

46 Purchase Transactions (Perpetual Inventory) Date 2009 Description JOURNAL 6-3 PAGE 24 Post. Ref. Dr Cr. Jan. 3 Merchandise Inventory 2 510 000 Cash 2 510 000 Purchased inventory from CV Budi. On January 3, SolusiNet purchased merchandise for cash from Alden Company, Rp2,510,000. 46 45

47 6-3 Jan. 4 Merchandise Inventory 9 250 000 Accounts Payable CV Thomas 9 250 000 Purchased inventory on account. On January 4, SolusiNet purchased merchandise on account from CV Thomas, Rp9,250,000. 47 46

48 Purchases Discounts 6-3 PT Alpha Technologies issues an invoice for Rp3,000,000 to SolusiNet dated March 12, with terms 2/10, n/30. 48

49 6-3 SolusiNet borrows cash at an annual interest rate of 6%. Should the firm borrow cash to pay the invoice within the discount period? YES Discount of 2% on Rp3,000,000 Rp60,000 Interest for 20 days at the rate of 6% on Rp2,940,000 9,800 Savings from borrowing Rp50,200 49

50 Purchase Transactions (Perpetual Inventory) 6-3 Mar. 12 Merchandise Inventory 3 000 000 Accounts Payable PT Alpha Tech. 3 000 000 Purchased inventory on account. On March 12, SolusiNet purchased merchandise on account from PT Alpha Technologies, Rp3,000,000. 50 49

51 6-3 Mar. 22 Accounts Payable PT Alpha Technol. 3 000 000 Cash 2 940 000 Merchandise Inventory 60 000 Paid PT Alpha Technologies for March 12 purchase. If payment is made by March 22, SolusiNet records the discount as a reduction in cost. Notice that Merchandise Inventory is credited because NetSolutions maintains a perpetual inventory. 51 50

52 6-3 Apr. 11 Accounts Payable PT Alpha Technol. 3 000 000 Cash 3 000 000 Paid PT Alpha Technologies for March 12 purchase. If SolusiNet does not pay the invoice until April 11, it would pay the full amount. 52 51

53 Purchases Return 6-3 A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order. 53

54 Purchases Allowance 6-3 When the defective or incorrect merchandise is kept by the buyer and the vendor makes a price adjustment, this is a purchases allowance. 54

55 @solusinet 6-3 SolusiNet receives the delivery from PT Malang Komputer and determines that Rp900,000 of the items are not the merchandise ordered. Debit memorandum #18 (also called a debit memo) is issued to Maxim Systems. 55

56 6-3 Mar. 7 Accounts Payable PT Malang Komp. 900 000 Merchandise Inventory 900 000 Debit Memo No. 18 On March 7, SolusiNet records the return of the merchandise indicated in Debit Memorandum No. 18. 56 55

57 6-3 On May 2, SolusiNet purchased Rp5,000,000 of merchandise from Delta Data Link, subject to terms 2/10, n/30. May 2 Merchandise Inventory 5 000 000 Accounts Payable Delta Data 5 000 000 Purchased merchandise. 57 56

58 6-3 On May 4, SolusiNet returns Rp3,000,000 of the merchandise. 4 Accounts Payable Delta Data Link 3 000 000 Merchandise Inventory 3 000 000 Returned portion of the merchandise purchased. 58 57

59 6-3 On May 12, SolusiNet pays the amount due, Rp1,960,000 [Rp2,000,000 (Rp5,000,000 Rp3,000,000) x 2%)]. 12 Accounts Payable Delta Data Links 2 000 000 Cash 1 960 000 Merchandise Inventory 40 000 Paid invoice [(Rp5,000,000 Rp3,000,000) x 2% = Rp40,000; Rp2,000,000 Rp40,000 =Rp1,960,000] 59 58

60 6-3 Example Exercise 6-4 Ramli Company purchased merchandise on account from a supplier for Rp11,500,000, terms 2/10, n/30. Rofles Company returned Rp3,000,000 of the merchandise and received full credit. a. If Rofles Company pays the invoice within the discount period, what is the amount of cash required for the payment? b. Under a perpetual inventory system, what account is credited by Rofles Company to record the return? 60 59

61 6-3 Follow My Example 6-4 a. Rp8,330,000. Purchase of Rp11,500,000 less the return of Rp3,000,000 less the discount of Rp170,000 [(Rp11,500,000 Rp3,000,000) x 2%]. b. Merchandise Inventory. For Practice: PE 6-4A, PE 6-4B 61 60

62 Transportation Costs 6-3 If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier, it is said to be FOB (free on board) shipping point. 62

63 6-3 June 10 Merchandise Inventory 900 000 Accounts Payable Magna Data 900 000 Purchased merchandise, terms FOB shipping point. 10 Merchandise Inventory 50 000 Cash 50 000 Paid shipping cost. On June 10, SolusiNet buys merchandise from Magna Data on account, Rp900,000, terms FOB shipping point and pays the transportation cost of Rp50,000. 63 62

64 Transportation Costs 6-3 If ownership of the merchandise passes to the buyer when the buyer receives the merchandise, the terms are said to be FOB (free on board) destination. 64

65 FOB Destination 6-3 @solusinet On June 15, SolusiNet sells merchandise to PT Kiki on account, Rp700,000, terms FOB destination. The cost of the merchandise sold is Rp480,000. 65

66 6-3 June 15 Accounts Receivable PT Kiki 700 000 Sales 700 000 Sold merchandise, terms FOB destination. 15 Cost of Merchandise Sold 480 000 Merchandise Inventory 480 000 Record cost of merchandise sold to PT Kiki 66 65

67 6-3 June 15 Delivery Expense 40 000 Cash 40 000 Paid shipping cost on merchandise sold. On June 15, SolusiNet pays the transportation cost of Rp40,000. 67 66

68 FOB Shipping Point 6-3 On June 20, SolusiNet sells merchandise to CV Permadi on account, Rp800,000, terms FOB shipping point. The cost of the merchandise sold is Rp360,000. 68

69 6-3 June 20 Accounts Receivable CV Permadi 800 000 Sales 800 000 Sold merchandise, terms FOB shipping point. 20 Cost of Merchandise Sold 360 000 Merchandise Inventory 360 000 Record cost of merchandise sold to CV Permadi 69 68

70 6-3 June 20 Accounts Receivable CV Permadi 45 000 Cash 45 000 Prepaid shipping cost on merchandise sold. SolusiNet pays the transportation cost of Rp45,000 and adds it to the invoice. 70 69

71 6-3 Example Exercise 6-5 Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. Merchandise Transportation Returns and Paid by Seller Transportation Terms Allowances a. Rp4,500,000 Rp200,000 FOB shipping point, Rp800,000 1/10, n/30 b. Rp5,000,000 60,000 FOB destination, Rp2,500,000 2/10, n/30 71 70

72 6-3 Follow My Example 6-5 a. Rp3,863,000. Purchase of Rp4,500,000 less return of Rp800,000 less the discount of Rp37,000 [(Rp4,500,000 Rp800,000) x 1%] plus Rp200,000 of shipping. b. Rp2,450,000. Purchase of Rp5,000,000 less return of Rp2,500,000 less the discount of Rp50,000 [(Rp5,000,000 Rp2,500,000) x 2%]. For Practice: PE 6-5A, PE 6-5B 72 71

73 6-3 73 18 72

74 Sales Taxes 6-3 Aug. 12 Accounts Receivable CV Lemon 106 000 Sales 100 000 Sales Taxes Payable 6 000 Invoice No. 339 On August 12, merchandise is sold on account to Lemon Company, Rp100,000. The state has a 6% sales tax. 74 18 73

75 6-3 Sept. 15 Sales Tax Payable 2 900 000 Cash 2 900 000 Payment for sales taxes collected during August. On September 15, the seller sends in a payment of Rp2,900,000 to the taxing unit for the August taxes collected. 75 18 74

76 Trade Discounts 6-3 When wholesalers offer special discounts to certain classes of buyers that order large quantities, these discounts are called trade discounts. 76

77 Dual Nature of Merchandise Transactions 6-3 Each merchandising transaction affects a buyer and a seller. In the following illustrations, we show how the same transactions would be recorded by both the seller and the buyer. July 1. CV Santi sold merchandise on account to CV Budiman, Rp7,500,000, terms FOB shipping point, n/45. The cost of the merchandise sold was Rp4,500,000. 77

78 6-3 CV Santi (Seller) Accounts Receivable CV Budiman 7,500,000 Sales 7,500,000 Cost of Merchandise Sold 4,500,000 Merchandise Inventory 4,500,000 CV Budiman (Buyer) Merchandise Inventory. 7,500,000 Accounts Payable CV Santi 7,500,000 78 18 77

79 6-3 July 2 CV Budiman paid transportation charges of Rp150,000 on July 1 purchase from CV Santi. 79

80 6-3 No entry. CV Santi (Seller) CV Budiman (Buyer) Merchandise Inventory 150,000 Cash 150,000 80 18 79

81 6-3 July 5 CV Santi sold merchandise on account to CV Budiman, Rp5,000,000, terms FOB destination, n/30. The cost of the merchandise sold was Rp3,500,000. 81

82 6-3 CV Santi (Seller) Accounts Receivable CV Budiman 5,000,000 Sales 5,000,000 Cost of Merchandise Sold 3,500,000 Merchandise Inventory 3,500,000 CV Budiman (Buyer) Merchandise Inventory. 5,000,000 Accounts Payable CV Santi 5,000,000 82 18 81

83 6-3 July 7. CV Santi paid transportation costs of Rp250,000 for delivery of merchandise sold to CV Budiman on July 5. 83

84 6-3 CV Santi (Seller) Delivery Expense 250,000 Cash 250,000 No entry. CV Budiman(Buyer) 84 18 83

85 6-3 July 13. CV Santi issued CV Budiman a credit memorandum for Rp1,000,000 of merchandise returned from a July 5 purchase on account. The cost of the merchandise was Rp700,000. 85

86 6-3 CV Santi (Seller) Sales Returns and Allowances 1,000,000 Accounts Receivable CV Budiman 1,000,000 Merchandise Inventory 700,000 Cost of Merchandise Sold 700,000 CV Budiman (Buyer) Accounts Payable CV Santi 1,000,000 Merchandise Inventory 1,000,000 86 18 85

87 6-3 July 15. CV Santi received payment from CV Budiman for purchase of July 5. 87

88 6-3 CV Santi (Seller) Cash 4,000,000 Accounts Receivable CV Budiman 4,000,000 CV Budiman (Buyer) Accounts Payable CV Santi 4,000,000 Cash 4,000,000 88 18 87

89 6-3 July 18. CV Santi sold merchandise on account to CV Budiman, Rp12,000,000, terms FOB shipping point, 2/10, n/eom. Santi prepaid transportation costs of Rp500,000, which were added to the invoice. The cost of the merchandise sold was Rp7,200,000. 89

90 6-3 CV Santi (Seller) Accounts Receivable CV Budiman 12,000,000 Sales 12,000,000 Accounts Receivable CV Budiman 500,000 Cash 500,000 Cost of Merchandise Sold 7,200,000 Merchandise Inventory 7,200,000 CV Budiman (Buyer) Merchandise Inventory 12,500,000 Accounts Payable CV Santi 12,500,000 90 18 89

91 6-3 July 28. CV Santi received payment from CV Budiman for purchase of July 18, less discount (2% x Rp12,000,000). 91

92 CV Santi (Seller) Cash 12,260,000 Sales Discounts 240,000 Accounts Receivable CV Budiman 12,500,000 6-3 CV Budiman (Buyer) Accounts Payable CV Santi 12,500,000 Merchandise Inventory 240,000 Cash 12,260,000 92 18 91

6-3 1-2 93 Example Exercise 6-6 Santi Co. sold merchandise to Butet Co. on account, Rp11,500,000, terms 2/15, n/30. The cost of the merchandise sold is Rp6,900,000. Santi Co. issued a credit memorandum for Rp900,000 for merchandise returned and later received the amount due within the discount period. The cost of the merchandise returned was Rp540,000. Journalize Santi Co. s and Butet Co. s entries for the receipt of the check for the amount due from Butet Co. 93 92

94 6-3 Follow My Example 6-6 Santi Company Journal Entries: Cash (Rp11,500,000 Rp900,000 Rp212,000) 10,388,000 Sales Discounts [(Rp11,500,000 Rp900,000) x 2%] 212,000 Accounts Receivable Butet Co. (Rp11,500,000 Rp900,000) 10,600,000 Butet Company Journal Entries: Accounts Payable Santi Co. (Rp11,500,000 Rp900,000) 10,600,000 Merchandise Inventory [(Rp11,500,000 Rp900,000)x 2%] 212,000 Cash (Rp11,500,000 Rp900,000 Rp212,000) 10,388,000 For Practice: PE 6-6A, PE 6-6B 94 93

95 6-4 Objective 4 Describe the adjusting and closing process for a merchandising business. 95

96 Inventory Shrinkage 6-4 Merchandising businesses may experience some loss of inventory due to shoplifting, employee theft, or errors in recording or counting inventory. If the balance of the Merchandise Inventory account is larger than the total amount of merchandise count, the difference is often called inventory shrinkage or inventory shortage. 96

97 6-4 @solusinet SolusiNet inventory records indicate that Rp63,950,000 of merchandise should be available for sale on December 31, 2009. The physical count reveals that only Rp62,150,000 is actually available. 97

98 6-4 Adjusting Entry Dec. 31 Cost of Merchandise Sold 1 800 000 Merchandise Inventory 1 800 000 Inventory shrinkage (Rp63,950,000 Rp62,150,000). Inventory records Rp63,950,000 Inventory count 62,150,000 Inventory shortage Rp 1,800,000 98 18 97

99 Step 1: Closing Entries 6-4 Close the temporary accounts with credit balances to Income Summary. Date Item PR Debit Credit 2009 Closing Entries Dec. 31 Sales 410 720 185 000 Rent Revenue 610 600 000 Income Summary 312 720 785 000 99 98

100 Step 2: Closing Entries 6-4 Close the temporary accounts with debit balances to Income Summary. 100 99

101 Step 2: Closing Entries 6-4 31 Income Summary 312 645 385 000 Sales Returns and Allow. 411 6 140 000 Sales Discounts 412 5 790 000 Cost of Merchandise Sold 510 525 305 000 Sales Salaries Expense 520 53 430 000 Advertising Expense 521 10 860 000 Depr. Exp. Store Equip. 522 3 100 000 Delivery Expense 523 2 800 000 Misc. Selling Expense 529 630 000 Office Salaries Expense 530 21 020 000 Rent Expense 531 8 100 000 Depr. Exp. Office Equip. 532 2 490 000 Insurance Expense 533 1 910 000 Office Supplies Expense 534 610 000 Misc. Administrative Exp. 539 760 000 Interest Expense 710 2 440 000 101 100

102 Step 3: Closing Entries 6-4 Close Income Summary (the balance represents a Rp75,400,000 profit for SolusiNet in 2009) to Cinta Cita, Capital. 31 Income Summary 312 75 400 000 Cinta Cita, Capital 310 75 400 000 102 101

103 Step 4: Closing Entries 6-4 Close Cinta Cita, Drawing to Cinta Cita, Capital. 31 Cinta Cita, Capital 310 18 000 000 Cinta Cita, Drawing 311 18 000 000 103 102

6-4 1-2 104 Example Exercise 6-7 Parulian Company s perpetual inventory records indicate that Rp382,800,000 of merchandise should be on hand on March 31, 2008. The physical inventory indicates that Rp371,250,000 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Parulian Company for the year ended March 31, 2008. Follow My Example 6-7 Mar. 31 Cost of Merchandise Sold (Rp382,800,000 (Rp371,250,000) 11,550,000 Merchandise Inventory 11,550,000 104 103 For Practice: PE 6-7A, PE 6-7B

105 Financial Analysis 6-4 The ratio of net sales to assets measures how effectively a business is using its assets to generate sales. Ratio of Net Sales to Assets = Net sales Average total assets 105

106 Ratio of Net Sales to Assets 6-4 PT Hero Supermarket PT Matahari Prima Putra Total revenues (net sales) Rp5,147,229 Rp9,768,075 Total assets: Beginning of year 1,615,240 6,048,441 End of year 1,753,298 8,403,470 Average Total asset 1,684,269 7,225,956 Ratio of net sales to assets 3.06 1.35 106

107 Interpretation 6-4 Based on these ratios, Sears appears better than J. C. Penney in utilizing its assets to generate sales. 107