MGAB01H3 Chapter Notes -Gross Profit, Net Income, Accounts Payable

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27 Oct 2010
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Completing the Accounting Cycle
Adjusting Entry
¾ The merchandise inventory account balance should equal the cost of the merchandise
on hand at all times. A physical inventory count adds an important control feature to
the perpetual inventory system
¾ If inventory errors have occurred, or if inventory has been stolen or damaged, it is
important that management be aware of this at an early stage so that preventive
control can be put in place
¾ To adjust for inventory shortage, cost of goods sold is debited and merchandise
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are part of the cost of the goods
Closing Entries
¾ Similar to service businesses, all temporary accounts are closed at the end of the
accounting cycle
¾ Sales is debited, expenses are credited, and drawings are debited
¾ Sales returns and allowances and cost of goods sold are credited
Post-Closing Trial Balance
¾ Similar to the service business, post-closing trial balance is simply to ensure that the
debits and credits equal each other
Summary of Merchandising Entries
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