To close various credit accounts to the profit or

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(To close various credit accounts to the profit or loss summary) A = L + E + 16 000 85 000 1 000 + 102 000 Profit or loss su mm ary Closing entry Closing entry (various debit accounts) 79 600 (various credit accounts) 102 000 Balance = 22 400 (Gross profit) After closing entries have been posted to the general ledger, balances in the various debit and credit accounts are zero and the balance in the profit or loss summary account represents the gross profit (i.e. the net effect of transferring all of the balances of these accounts to the profit or loss summary). The remaining temporary accounts such as interest income or rent expense must also be closed, as illustrated in chapter 3. Worksheet You may recall that we introduced the worksheet in section 3.8. Please refer to this section if you need to refresh your memory. Entering the closing entries on a worksheet before preparing journal entries can be helpful. To illustrate, we have entered the closing entries journalised above onto the worksheet (extract) in figure 5.25. FIGURE 5.25 Worksheet (extract) closing entries for merchandising organisations A d juste d trial b alance Closin g entries Post-closin g trial b alance Perpetual account Dr Cr Dr Cr Dr Cr S ales revenue 85 000 85 000 Cost of sales 57 600 57 600 S ales returns and allowances 5 000 5 000 S ales revenue 85 000 85 000 CHAPTER 5 Reporting and analysing inventory 313 Copyright © ${Date}. ${Publisher}. All rights reserved.
A d juste d trial b alance Closin g entries Post-closin g trial b alance Perio d ic account Dr Cr Dr Cr Dr Cr S ales returns and allowances 5 000 5 000 Inventory 14 000 16 000 14 000 16 000 Purchases 60 000 60 000 Freight-in 600 600 Purchase returns and allowances 1 000 1 000 It is important to observe that under the periodic system the inventory account is both credited and debited. The opening balance of Inventory is credited to clear this old balance and the closing balance is debited to ensure the correct closing inventory is recorded in the inventory general ledger account and then subsequently transferred to the financial statements. USING THE DECISION-MAKING TOOLKIT Conway Ltd is a leading manufacturing company and supplier of building products. Figures for inventory from the 2019 annual report for Conway Ltd are shown below. CONWAY LTD Notes to the financial state m ents NOTE 10. INVENTORIE SThe components of inventories are summarised at 30 June as follows (in millions):20192018CurrentRaw and process materials and stores$ 41.1$ 41.4Work in progress6.56.3Finished goods87.888.4Land held for sale26.520.5Total current inventories$161.9$156.6In the note on the significant accounting policies of the 2019 annual report for Conway Ltd, the sectionon inventories specifies that the inventories are valued at the lower of cost and net realisable value andthat the most appropriate valuation method is used for each class of inventory. The majority of ConwayLtd’s inventory has been valued using either the first-in-first-out basis or the average cost basis.Some additional facts are ($ millions):20192018Current liabilities$212.6$204.5Current assets318.1319.5Cost of sales618.1619.8Sales revenue873.3841.2

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