3.03 Key Terms

3.
03 Key Terms
TERMS DEFINITIONS
A subsidiary ledger containing only accounts for
Accounts payable ledger
vendors from whom items are purchased on account
A subsidiary ledger containing only accounts for
Accounts receivable ledger
charge customers
The total amount of depreciation expense that has
Accumulated depreciation
been recorded since the purchase of a plant asset
The difference between an asset’s account balance
Book value
and its related contra account balance
The original cost of a plant asset minus accumulated
Book value of a plant asset
depreciation
The difference between the balance of Accounts
Book value of accounts
Receivable and its contra account, Allowance for
receivable
Uncollectible Accounts
An account in the general ledger that summarizes all
Controlling account
accounts in a subsidiary ledger
Cash and other assets expected to be exchanged for
Current assets
cash or consumed within a year
The portion of a plant asset’s cost that is transferred
Depreciation expense to an expense account in each fiscal period during the
plant asset’s useful life
The amount an owner expects to receive when a plant
Estimated salvage value
asset is removed from use
Merchandise inventory Total of goods on hand for sale to customers
Assets that will be used for a number of years in the
Plant assets
operation of a business
Schedule of accounts A listing of vendor accounts with account balances
payable and total amount due all vendors
Schedule of accounts A listing of customer accounts with account balances
receivable and total amount due from all customers
A method of calculating depreciation which charges
Straight-line method of
an equal amount of depreciation expense for a plant
depreciation
asset in each year of its useful life
A ledger that is summarized in a single general ledger
Subsidiary ledger
account
Uncollectible accounts Accounts receivable that cannot be collected
3.03 PowerPoint Notes 1 – GLENCOE
Posting to an Accounts Payable Ledger
A large business needs to maintain an accounts payable subsidiary ledger:
___________________________________________________.
The most important thing a retail business purchases is merchandise to resell.

Merchandise can be bought on a cash basis or on __________.
A business that makes many purchases on credit will set up an _______________

_________________________________ with an account for each creditor or supplier.
The individual accounts are summarized in the ____________________________

_________________________.
Vendor
Vendor: Company Name Number: xxx
Address:
DATE POST CREDIT
ITEM
20-- REF DEBIT CREDIT BALANCE
Purchases Accounts Payable A. P. – Subsidiary Ledger
Dr. Cr. Dr. Cr. Dr. Cr.

2,300 2,300 2,300
A _________________ occurs when a business returns merchandise for a full credit.
A _____________________ occurs when a business keeps unsatisfactory merchandise

but pays a discounted price.
A _________________________ is used to notify suppliers of a purchase return or

request for purchases allowance.
In recording a purchase returns and allowances transaction:

Debit: ____________________________________
Debit: ____________________________________
Credit: ____________________________________
3.03 PowerPoint Notes 1 – Page 2 – GLENCOE
To post to the accounts payable subsidiary ledger from a purchases journal:

1. Enter the _______________________ in the Date column of the
subsidiary ledger account.
2. Enter the __________________________ in the Posting Reference
column.
3. Enter the ____________________ to the creditor in the Credit column of
the subsidiary ledger account.
4. Compute the ________________________ by adding the amount in the
Credit column to the previous balance amount.
5. Return to the purchases journal and place a __________________ in the
first Posting Reference column.
To post from the General Debit column of the purchases journal:

1. Enter the transaction date in the ________________________________.
2. Record the _______________________________ in the Posting
Reference column.
3. Enter the ________________________ in the General Debit column of
the purchases journal in the general ledger Debit column.
4. Compute and ________________________ in the Debit Balance column.
5. Place the ___________________________________ in the General
Posting Reference column of the purchases journal.
Complete the purchases journal by following these steps:

1. Draw a _____________________ across the three amount columns.
2. __________ each column.
3. Test for debit and credit ______________.
4. __________________ the journal is being totaled in the Date column just
below the single rule.
5. On the same line, __________________ in the Creditor’s Account Credited
column.
6. Enter the three ________________________ in ink below the footings.
7. Draw a _____________________ across the three amount columns.
3.03 PowerPoint Notes 1
A large business needs to maintain an accounts payable subsidiary ledger:

To provide individual account records for each vendor.
The most important thing a retail business purchases is merchandise to resell.

Merchandise can be bought on a cash basis or on account.
A business that makes many purchases on credit will set up an accounts payable
subsidiary ledger with an account for each creditor or supplier.
The individual accounts are summarized in the Accounts Payable general ledger
controlling account.
Vendor
Vendor: Company Name Number: xxx
Address
:
DATE POST CREDIT
ITEM
Purchases Accounts Payable A. P. – Subsidiary Ledger
Dr. Cr. Dr. Cr. Dr. Cr.

2,300 2,300 2,300
A purchase return occurs when a business returns merchandise for a full credit.
A purchase allowance occurs when a business keeps unsatisfactory merchandise but

pays a discounted price.
A debit memorandum is used to notify suppliers of a purchase return or request for

purchases allowance.
In recording a purchase returns and allowances transaction:

Debit: Accounts Payable
Debit: Accounts Payable subsidiary ledger
Credit: Purchases Returns and Allowances
3.03 PowerPoint Notes 1 – Page 2
Posting to the accounts payable subsidiary ledger from a purchases journal:

1. Enter the transaction date in the Date column of the subsidiary ledger
account.
2. Enter the journal letter and number in the Posting Reference column.
3. Enter the amount owed to the creditor in the Credit column of the
subsidiary ledger account.
4. Compute the new account balance by adding the amount in the Credit
column to the previous balance amount.
5. Return to the purchases journal and place a check mark in the first
Posting Reference column.
To post from the General Debit column of the purchases journal, follow these steps:
1. Enter the transaction date in the general ledger account Date column.
2. Record the journal letter and page number in the Posting Reference
column.
3. Enter the amount recorded in the General Debit column of the purchases
journal in the general ledger Debit column.
4. Compute and record the new balance in the Debit Balance column.
5. Place the general ledger account number in the General Posting
Reference column of the purchases journal.
Complete the purchases journal by following these steps:

1. Draw a single rule across the three amount columns.
2. Foot each column.
3. Test for debit and credit equality.
4. Enter the date the journal is being totaled in the Date column just below
the single rule.
5. On the same line, write Totals in the Creditor’s Account Credited column.
6. Enter the three column totals in ink below the footings.
7. Draw a double rule across the three amount columns.
3.03 PowerPoint Notes 1 – SW
As you view the PowerPoint Presentation, record notes in the graphic organizer below.
ABC Supply
100.00 One page per each vendor

Jo’s
Distributing
Accounts Payable
Z’s Warehouse
500.00
100.00 $851.00
351.00 500.00
351.00
851.00
T Liabilities
One controlling account
Opening an Account in the Accounts Payable Subsidiary Ledger

1 Vendor 220
Vendor: Ceramic Supply Number: 2
DATE POST CREDIT

ITEM
Nov. 1 Balance  5,808.00
3 4 5 6
1. Write the ________________ ___________.
2. Write the ________________ ________________.
3. Write the __________.
4. Write the word __________________.
5. Place a check mark in the __________ ________ column.
6. Write the _____________.
3.03 PowerPoint Notes 1 – Page 2 – SW
Posting from the Purchases Journal to the Accounts Payable Ledger
2
PURCHASES JOURNAL
Page No. 11
PURCHASES DR.
DATE ACCOUNT CREDITED PURCH NO POST REF
ACCTS. PAY. CR.
Nov. 2 Crown Distributing 83 230 2,039.00
1 5 3
Vendor
Vendor: Crown Distributing Number: 230
POST CREDIT
DATE ITEM
REF DEBIT CREDIT BALANCE
Nov. 2 P11 2,039.00 2,039.00
4
1. Write the ___________.
2. Write the journal _________ ___________.
3. Write the ___________ _______________.
4. Write the new ______________ ____________.
5. Write the ____________ ___________.
CASH PAYMENTS JOURNAL Page 21
CK POST GENERAL ACCOUNTS PURCHASES

DATE ITEM PAYABLE DISCOUNT CASH
REF
NO DEBIT CREDIT DEBIT CREDIT CREDIT
Nov. 7 Syn Arts 294 260 1,050.00 1,050.00
Vendor
POST CREDIT
DATE ITEM
Oct. 7 P10 1,050.00 1,050.00
Nov. 5 P11 3,816.00 4,866.00
7 CP21 1050.00 3,816.00
Add the numbering above for the steps below to show how information gets posted:
1. Write the date.
2. Write the journal page number.
3. Write the debit amount.
4. Subtract the amount in the Debit column from the previous balance in the
Credit column. Write the new balance.
5. Write the vendor number.
Does posting to a vendor ledger from the General Journal follow the same steps as any
other posting? What are those steps?
1.
2.
3.
4.
5.
Is there anything different about the posting?
Is there any difference between posting a debit or credit amount from the General
Journal?
What is it?
How do you prove the accounts payable ledger?

Accounts Payable
$851.00
3.03 PowerPoint Notes 1 Liabilities

ABC Supply
Subsidiary Ledger
100.00 One page per each vendor
Jo’s
Distributing
Z’s Warehouse
500.00
100.00
351.00 500.00
351.00
851.00
T
General Ledger
Opening an Account in the Accounts Payable Subsidiary Ledger
Vendor 220
Vendor: 1 Ceramic Supply Number: 2
DATE POST CREDIT

ITEM
31. Write the4vendor name. 5 6

3. Write the date.
4. Write the word Balance.
5. Place a check mark in the Post Ref. column.
6. Write the balance.
Posting from the Purchases Journal to the Accounts Payable Ledger
2
PURCHASES JOURNAL
Page No. 11
PURCHASES DR.
DATE ACCOUNT CREDITED PURCH NO POST REF
ACCTS. PAY. CR.
Nov.2 Crown Distributing 83 230 2,039.00
5 3
1
Vendor
POST CREDIT
DATE ITEM
Nov. 2 P11 2,039.00 2,039.00
4
1 Write the date.
2 Write the journal page number.
3 Write the credit amount.
4 Write the new account balance.
5 Write the vendor number.

REF
No DEBIT CREDIT DEBIT CREDIT CREDIT
Nov. 7 Syn Arts 294 260 1,050.00 1,050.00
5
3
1 Vendor
Vendor: Synthetic Arts Number: 260
4
POST CREDIT
DATE ITEM
Oct. 7 P10 1,050.00 1,050.00
Nov. 5 P11 3,816.00 4,866.00
7 CP21 1050.00 3,816.00
Add the numbering above for the steps below to show how information gets posted:
1. Write the date.
4. Subtract the amount in the Debit column from the previous balance in the
Credit column. Write the new balance.
Does posting to a vendor ledger from the General Journal follow the same steps as any
other posting? Yes What are those steps?
1. Write the date.

2. Write the general journal page number.
3. Write the amount.
4. Add the amount in the Credit column to the previous balance in the Credit
Balance column. Write the new balance.
Is there anything different about the posting?

Yes. The way the posting reference is written in the general journal.
Is there any difference between posting a debit or credit amount from the General
Journal? Yes
What is it? Post the debit in the debit column and the credit in the credit column.
Subtract the debit from the credit balance or add the credit to the credit balance
to get the new balance.
How do you prove the accounts payable ledger?

Prepare a listing of vendor accounts, account balances, and total amount
due to all vendors. Compare the total of this listing to the balance of
Accounts Payable in the general ledger. If they agree, the accounts
payable ledger is said to be proved.
Posting to an Accounts Receivable Ledger
Record notes below as you view the PowerPoint presentation.
Steps to post transactions to the accounts receivable subsidiary ledger:

1. Enter the ___________________ in the ___________ column.
2. Enter the _____________________________ in the Posting Reference column.
3. Enter the total amount __________________ in the Debit column.
4. Compute the new balance and enter it in the ____________________.
5. Place a _____________ in the Posting Reference column in the ____________.
Only the amount _______________ from the _____________ are posted to the general
ledger accounts. For the ___________________, the column totals posted are
 __________________________
 __________________________
 __________________________
Footing, Proving, Totaling, and Ruling the Sales Journal

Steps to verify the column totals before posting them to the general ledger:
1. Draw a single rule across the three amount columns, ______ the last transaction.
2. _________ the amount columns. ____________ is a column total written in small
penciled figures.
3. On separate paper, __________ the debit column total equals the total of the two
credit columns.
4. Enter the date in the __________________ below the single rule.
5. Enter the word ____________on the same line in the Customer’s Account
Debited column.
6. Enter the ______________________ below the footings.
7. ___________________ the three amount columns.
Posting the Total of the Sales Credit Column

Procedure for posting the ____________ column to the general ledger _____________:
1. In the Date column, enter the date from the _____________ of the sales journal.
2. Enter the _____________________ and ________________ in the Posting
Reference column.
3. Enter the total from the _______________ column of the sales journal in the
Credit column.
4. Compute the ________________ and enter it in the Credit Balance column.

5. In the sales journal, enter the _______________________ in parentheses below
the double rule in the Sales Credit column.
Posting the Total of the Sales Tax Payable Credit Column

Procedure for posting the total of the _____________________________ column:
1. In the ________ column of the Sales Tax Payable account, enter the _______
from the Totals line of the sales journal.
2. Enter the sales journal ___________________ in the Posting Reference column.
3. Enter the total from the _________________________ column of the sales
journal in the Credit column.
4. Compute the new balance and enter it in the ___________________________.

5. In the sales journal, enter the __________________________ account number
________________ below the double rule in the Sales Tax Payable Credit
column.
Posting the Total of the Accounts Receivable Debit Column

Procedure for posting the total of the ______________________________ column:
1. In the Date column of the ________________________________, enter the date
from the Totals line of the ____________________.
2. Enter the sales journal letter and page number in the
___________________________.
3. Enter the total from the ______________________________ of the sales journal
in the Debit column.
4. Compute the _____________________ and enter it in the Debit Balance column.

5. In the sales journal, enter the ___________________________________ in
parentheses below the double rule in the Accounts Receivable Debit column.
Key Terms Review

 ____________________ -- Journals that have amount columns for
recording debits and credits to specific general ledger accounts
 _________________ -- A special journal used to record only the sale of

merchandise on account
 ______________- A column total written in small pencil figures
Posting to the Accounts Receivable Subsidiary Ledger

Steps to post a __________________________________ to an account in the
______________________________________:
1. Enter the ____________________ in the Date column of the subsidiary
ledger account.
2. Enter the journal letters and page number in the
_______________________________.
3. Enter the ______________ from the Accounts Receivable Credit column
of the cash receipts journal in the subsidiary ledger Credit column.
4. Enter the ___________________ in the Balance column. If it is zero,
draw a line through it.
5. Enter a _______________ in the Posting Reference column of the cash
receipts journal.
Posting the General Credit Column

Steps to post from the __________________ column of the _____________________:
1. Enter the __________________in the Date column of the general ledger.
2. Enter the ______________________________________ in the Posting
Reference column.
3. Enter the amount from the __________________________ of the cash
receipts journal.
4. Enter the _____________________ in the proper Balance column. If it is
zero, draw a line through it.
5. Enter the ____________________________________ in the Posting
Reference column of the cash receipts journal.
Footing, Proving, Totaling, and Ruling the Cash Receipts Journal

Follow these steps to _____________ the ______________________:
1. Draw a _________________ across the six amount columns below the
last transaction.
2. __________the columns.
3. ___________ the debits and credits are equal.
4. Enter the ___________ the journal is being totaled in the Date column.
5. Enter ____________ in the _______________________ column.
6. Enter the ___________________, in ink, below the footings.
7. ___________________ the amount columns.
Posting Column Totals to the General Ledger

Steps to ________________ to the _______________________:
1. Place a _________________ in parentheses under the General Credit
column total.
2. Post the ______________ to the _________________ Credit column.
3. Post the ______________________ to the ___________________
account Credit column.
4. Post the _______________________ to the __________________
_______________________ Credit column.
5. Post the _____________________ to the ______________________
Debit column.
6. Post the _________________________ to the __________________
debit column.
7. Compute ________________ for each general ledger account.
8. Write each ______________________________ below the double rule in
the _________________________.
Using the Schedule of Accounts Receivable

A schedule is prepared for each subsidiary ledger to determine whether the
_______________________________________________________________.
Record notes below as you view the PowerPoint presentation.
Steps to post transactions to the accounts receivable subsidiary ledger:

1. Enter the transaction date in the Date column.
2. Enter the journal letter and page number in the Posting Reference column.
3. Enter the total amount to be received in the Debit column.
4. Compute the new balance and enter it in the Balance column.
5. Place a check mark in the Posting Reference column in the sales journal.
Only the amount column totals from the special journals are posted to the general
ledger accounts. For the sales journal, the column totals posted are
 Sales Credit
 Sales Tax Payable Credit
 Accounts Receivable Debit
Footing, Proving, Totaling, and Ruling the Sales Journal

Steps to verify the column totals before posting them to the general ledger:
1. Draw a single rule across the three amount columns, below the last transaction.
2. Foot the amount columns. Footing is a column total written in small penciled
figures.
3. On separate paper, verify the debit column total equals the total of the two credit
columns.
4. Enter the date in the Date column below the single rule.
5. Enter the word Totals on the same line in the Customer’s Account Debited
column.
6. Enter the column totals below the footings.
7. Double-rule the three amount columns.
Posting the Total of the Sales Credit Column

Procedure for posting the Sales Credit column to the general ledger Sales account:
1. In the Date column, enter the date from the Totals line of the sales journal.
2. Enter the sales journal letter and page number in the Posting Reference
column.
3. Enter the total from the Sales Credit column of the sales journal in the Credit
column.
4. Compute the new balance and enter it in the Credit Balance column.
5. In the sales journal, enter the Sales account number in parentheses below the
double rule in the Sales Credit column.
Posting the Total of the Sales Tax Payable Credit Column

Procedure for posting the total of the Sales Tax Payable Credit column:
1. In the Date column of the Sales Tax Payable account, enter the date from the
Totals line of the sales journal.
column.
3. Enter the total from the Sales Tax Payable Credit column of the sales journal in
the Credit column.
4. Compute the new balance and enter it in the Credit Balance column.
5. In the sales journal, enter the Sales Tax Payable account number in
parentheses below the double rule in the Sales Tax Payable Credit column.
Posting the Total of the Accounts Receivable Debit Column

Procedure for posting the total of the Accounts Receivable Debit column:
1. In the Date column of the Accounts Receivable account, enter the date from
the Totals line of the sales journal.
column.
3. Enter the total from the Accounts Receivable Debit column of the sales journal
in the Debit column.
4. Compute the new balance and enter it in the Debit Balance column.
5. In the sales journal, enter the Accounts Receivable account number in
parentheses below the double rule in the Accounts Receivable Debit column.
Key Terms Review

 Special journals -- Journals that have amount columns for recording
debits and credits to specific general ledger accounts
 Sales journal -- A special journal used to record only the sale of

merchandise on account
 Footing -- A column total written in small pencil figures
Posting to the Accounts Receivable Subsidiary Ledger

Steps to post a cash receipt transaction to an account in the accounts receivable
subsidiary ledger:
1. Enter the transaction date in the Date column of the subsidiary ledger
account.
2. Enter the journal letters and page number in the Posting Reference
column.
3. Enter the amount from the Accounts Receivable Credit column of the
cash receipts journal in the subsidiary ledger Credit column.
4. Enter the new balance in the Balance column. If it is zero, draw a line
through it.
5. Enter a check mark in the Posting Reference column of the cash receipts
journal.
Posting the General Credit Column

Steps to post from the General Credit column of the cash receipts journal:
1. Enter the transaction date in the Date column of the general ledger.
2. Enter the journal letters and page number in the Posting Reference
column.
3. Enter the amount from the General Credit column of the cash receipts
journal.
4. Enter the new balance in the proper Balance column. If it is zero, draw a
line through it.
5. Enter the general ledger account number in the Posting Reference
column of the cash receipts journal.
Footing, Proving, Totaling, and Ruling the Cash Receipts Journal

Follow these steps to complete the cash receipts journal:
1. Draw a single rule across the six amount columns below the last
transaction.
2. Foot the columns.
3. Verify the debits and credits are equal.
4. Enter the date the journal is being totaled in the Date column.
5. Enter Totals in the Account Name column.
6. Enter the column totals, in ink, below the footings.
7. Double-rule the amount columns.
Posting Column Totals to the General Ledger

Steps to post totals to the general ledger:
1. Place a check mark in parentheses under the General Credit column
total.
2. Post the Sales total to the Sales account Credit column.
3. Post the Sales Tax Payable total to the Sales Tax Payable account
Credit column.
4. Post the Accounts Receivable total to the Accounts Receivable
controlling account Credit column.
5. Post the Sales Discounts total to the Sales Discounts account Debit
column.
6. Post the Cash in Bank total to the Cash in Bank account debit column.
7. Compute new balances for each general ledger account.
8. Write each account number in parentheses below the double rule in the
cash receipts journal.
Using the Schedule of Accounts Receivable

A schedule is prepared for each subsidiary ledger to determine whether the subsidiary
ledger’s sum equals the controlling account’s ending balance.
One page per each customer

Town Crafts
312.00 Accounts Receivable

1st Church
312.00
418.00 418.00 $800.00
800.00
T
Assets
1 2 Customer
Vendor: Cumberland Center Number: 120
DATE POST CREDIT

ITEM
SALES JOURNAL
2
Page 11
ACCOUNT SALE POST SALES SALES TAX
DATE
CREDITED NO REF ACCTS. REC. DR. CREDIT PAYABLE CREDIT
Nov. 3 Village Crafts 76 150 572.40 540.00 32.40
3 5
1
Vendor
Vendor: Village Crafts Number: 150
POST DEBIT
DATE ITEM
Nov. 3  318.00
P11 572.40 890.40
4
1 Write the .
2 Write the sales journal .
3 Write the .
4 Add the amount in the Debit column to the previous balance in the Debit
Balance. Write the new
5 Write the .
POSTING FROM A CASH RECEIPTS JOURNAL TO AN ACCOUNTS RECEIVABLE

LEDGER
1. Write the .
4. Subtract the amount in the column from the previous
balance in the Balance column. Write the
.
5. Write the .
POSTING A CREDIT ENTRY FROM A GENERAL JOURNAL TO AN ACCOUNTS

RECEIVABLE LEDGER
1. Write the .
2. Write the page number.
3. Write the .
4. Subtract the amount in the column from the previous
balance in the Balance column. Write the ____
.
5. Write the .
How do you prove the accounts receivable ledger?

Subsidiary Ledger
One page per each customer
Town Crafts
312.00 Accounts Receivable

1st Church
312.00 $800.00
418.00 418.00
800.00
T
Assets
General Ledger
Customer Name Customer Number

1 2
Customer
Vendor: Cumberland Center Number: 120
DATE POST CREDIT

ITEM
3.03 PowerPoint
2 Notes 2 – Page 2
SALES JOURNAL
Page 11
ACCOUNT SALE POST ACCTS. REC. SALES SALES TAX
DATE
CREDITED NO REF DR. CREDIT PAYABLE CREDIT
Nov. 3 Village Crafts 76 150 572.40 540.00 32.40
3 5
1
Vendor
Vendor: Village Crafts Number: 150
POST DEBIT
DATE ITEM
Nov. 1  318.00
3 P11 572.40 890.40
4
1. Write the date.
2. Write the sales journal page number.
4. Add the amount in the Debit column to the previous balance in the Debit
Balance. Write the new account balance.
5. Write the customer number.
POSTING FROM A CASH RECEIPTS JOURNAL TO AN ACCOUNTS RECEIVABLE

LEDGER
1. Write the date.
2. Write the cash receipts journal page number.
3. Write the credit amount.
4. Subtract the amount in the Credit column from the previous balance in the
Debit Balance column. Write the new balance.
POSTING A CREDIT ENTRY FROM A GENERAL JOURNAL TO AN ACCOUNTS

RECEIVABLE LEDGER
1. Write the date.
4. Subtract the amount in the Credit column from the previous balance in the
Debit Balance column. Write the new balance.
How do you prove the accounts receivable ledger?
Prepare a listing of customer accounts, account balances, and total

amount due from all customers. Compare the total of this listing to the
balance of Accounts Receivable in the general ledger. If they agree, the
accounts receivable ledger is said to be proved.
Correcting Errors in Subsidiary Ledgers
Detecting Errors in the Subsidiary Ledger
Some errors that could exist in the subsidiary ledger are

 ______________________________ a transaction, or
 _______________________ an account balance.
________________ the accounts receivable subsidiary ledger does not ensure that
transactions were posted to the correct _____________________________.
Detecting Errors in the Subsidiary Ledger
Some errors that could exist in the subsidiary ledger are

 failing to post a transaction, or
 miscalculating an account balance.
Proving the accounts receivable subsidiary ledger does not ensure that transactions
were posted to the correct customer account.
Journalizing Correcting Entries Affecting Customer Accounts
1. Write the ___________.
2. Write the name of ________ ___________.
3. Write the _________________ _____________.
4. Write the ____________.
5. Write the ________ of incorrectly charged _____________.
6. Write the _______________.
Posting Correcting Entries Affecting Customer Accounts
1. Write the __________.
2. Write the general journal ________ ___________.
3. Write the __________.
4. Calculate and write the new ___________ ______________.
5. Write the appropriate ___________ ____________ in the Post. Ref. columns.

Journalizing Correcting Entries Affecting Customer Accounts
1. Write the date.

2. Write the name of correct customer.
3. Write the memorandum number.
5. Write the name of incorrectly charged customer.
Posting Correcting Entries Affecting Customer Accounts
1. Write the date.

4. Calculate and write the new account balances.
5. Write the appropriate vendor number in the Post. Ref. columns.
Posting to the General Ledger From a General Journal
Sample general ledger account:
ACCOUNT CASH ACCOUNT NO. 1110
DATE POST
ITEM DEBIT CREDIT
20-- REF
DEBIT CREDIT BALANCE BALANCE
Nov. 1 Balance  17,647.44
Steps for starting a new page for an account in a general ledger:
1. Write the ____________ ____________.

2. Write the ______________ ___________.
3. Write the __________.
4. Write the word Balance in the ________ column.
5. Place a check mark in the _________ ________ column.
Posting the “General” amount columns of a cash payments journal to the general ledger:
Ck POST GENERAL ACCOUNTS PURCHASES

REF
No DEBIT CREDIT DEBIT CREDIT CREDIT
Nov. 7 Purchases 301 5110 600.00 600.00
ACCOUNT PURCHASES ACCOUNT NO. 5110
DATE POST
ITEM DEBIT CREDIT
20-- REF
Nov. 1 Balance  154,840.92
7 CP21 600.00 155,440.92
Steps for posting from the general amount columns of a cash payments journal to a
general ledger:
1. Write the ____________.

2. Write the _____________ ________ _____________.
3. Write the ________ ____________.
4. Add the amount in the Debit column to the previous balance in the
Balance Debit column. Write the __________ ______________.
5. Write the general ledger _____________ _____________.
Posting to the general ledger from a general journal:
GENERAL JOURNAL Page 11

DOC POST GENERAL
DATE ITEM
NO REF DEBIT CREDIT
Nov. 6 Supplies – Store M52 5110 210.00
Accounts Payable – Craft Supply 250 210.00
ACCOUNT SUPPLIES - STORE ACCOUNT NO. 5110
DATE POST
ITEM DEBIT CREDIT
20-- REF
6 G11 210.00 6,138.00
Steps for posting a debit entry from a general journal to a general ledger:
1. Write the __________.

2. Write the general journal _________ _____________.
3. Write the ____________.
4. Calculate and write the ______ ___________ ___________.
5. Write the general ledger ___________ ____________.

DOC POST GENERAL
DATE ITEM
NO REF DEBIT CREDIT

2110
ACCOUNT ACCOUNTS PAYABLE ACCOUNT NO. 2110
DATE POST
ITEM DEBIT CREDIT
20-- REF
Nov. 1 Balance  12,984.00
6 G11 210.00 13,194.00
Steps for posting a credit entry from a general journal to a general ledger:
1. Write the __________.

2. Write the general journal ________ ____________.
3. Write the ____________.
4. Calculate and write the ________ ___________ _____________.
5. Write the general ledger _________ ____________.
Sample general ledger account:
ACCOUNT CASH ACCOUNT NO. 1110
DATE POST
ITEM DEBIT CREDIT
20-- REF
Nov. 1 Balance  17,647.44
Steps for starting a new page for an account in a general ledger:
1. Write the account title.

2. Write the account number.
3. Write the date.
4. Write the word Balance in the Item column.
5. Place a check mark in the Post Ref. column.
Posting the “General” amount columns of a cash payments journal to the general ledger:

REF
NO DEBIT CREDIT DEBIT CREDIT CREDIT
Nov.7 Purchases 301 5110 600.00 600.00
ACCOUNT PURCHASES ACCOUNT NO. 5110
DATE POST
ITEM DEBIT CREDIT
20-- REF
Nov. 1 Balance  154,840.92
7 CP21 600.00 155,440.92
Steps for posting from the general amount columns of a cash payments journal to a
general ledger:
1. Write the date.

4. Add the amount in the Debit column to the previous balance in the
Balance Debit column. Write the new balance.
5. Write the general ledger account number.
Posting to the general ledger from a general journal:

DOC POST GENERAL
DATE ITEM
REF
NO DEBIT CREDIT
ACCOUNT SUPPLIES - STORE ACCOUNT NO. 5110
DATE POST
ITEM DEBIT CREDIT
20-- REF
5,928.00
Nov. 1 Balance 
6 G11 210.00 6,138.00
Steps for posting a debit entry from a general journal to a general ledger:
1. Write the date.

4. Calculate and write the new account balance.

DOC POST GENERAL
DATE ITEM
REF
NO DEBIT CREDIT

2110
ACCOUNT ACCOUNTS PAYABLE ACCOUNT NO. 2110
DATE POST
ITEM DEBIT CREDIT
20-- REF
Nov. 1 Balance  12,984.00
6 G11 210.00 13,194.00
Steps for posting a credit entry from a general journal to a general ledger:
1. Write the date.

4. Calculate and write the new account balance.
Posting to the General Ledger From Special Journals
Posting Totals of a Sales Journal to a General Ledger

1. Write the _________.
2. Write the sales journal ________ ____________.
3. For each column and account, write the ___________ __________.
4. For each account, calculate and write the _______ ____________
____________.
5. In the sales journal, write the general ledger ___________ _________.
Posting the Total of a Purchases Journal to a General Ledger

1. Write the ________.
2. Write the purchases journal _______ __________.
3. For each account, write the purchases journal __________ ________.
4. For each account, calculate and write the ________ ____________.
5. Write the purchases general ledger account number and the accounts
payable general ledger ____________ ____________.
Posting Special Amount Column Totals of a Cash Receipts Journal to a General Ledger
1. __________
2. Journal ________ ____________
3. Column _____________
4. Account ______________
5. Account ____________
Posting to the General Ledger From Special Journals
Posting Totals of a Sales Journal to a General Ledger

1. Write the date.
2. Write the sales journal page number.
3. For each column and account, write the column total.
4. For each account, calculate and write the new account balance.
5. In the sales journal, write the general ledger account number.
Posting the Total of a Purchases Journal to a General Ledger

1. Write the date.
2. Write the purchases journal page number.
3. For each account, write the purchases journal column total.
4. For each account, calculate and write the new balance.
5. Write the purchases general ledger account number and the accounts
payable general ledger account number.
Posting Special Amount Column Totals of a Cash Receipts Journal to a General Ledger
1. Date
2. Journal page number
3. Column total
4. Account balance
5. Account number
Preparing a Multicolumn Trial Balance Worksheet
The Ten-Column Worksheet
The ten-column worksheet has five amount sections:

 _________________
 _________________
 ___________________________
 _______________________
 __________________
Completing the Trial Balance Section
A trial balance is used to prove the __________________. Follow these steps to

prepare the trial balance:
 Enter the _________________________ for each account in the Account

Name and Number columns.
 Enter the _________________ in the Debit or Credit column.
 ___________ the Debit and Credit columns.
If the Debit and Credit columns are proven, draw a ____________________ across
both columns.
The Ten-Column Worksheet
The ten-column worksheet has five amount sections:

 Trial Balance
 Adjustments
 Adjusted Trial Balance
 Income Statement
 Balance Sheet
Completing the Trial Balance Section
A trial balance is used to prove the general ledger. Follow these steps to prepare
the trial balance:
 Enter the account name and number for each account in the Account
Name and Number columns.
 Enter the balance in the Debit or Credit column.
 Rule the Debit and Credit columns.
If the Debit and Credit columns are proven, draw a double-rule line across both
columns.
Record a Trial Balance on a Worksheet.
From the general ledger, record on the worksheet, in numerical order for each account
1. ____________ ___________
2. _____________ ___________
Then: Total, prove, and rule the debit and credit columns.
Record Supplies Adjustments on a Worksheet.

1. Write the debit amounts in the ____________ _________ ____________.
2. Write the credit amounts in the _____________ ________ ___________.
3. Label the two parts of the Supplies-Office adjustment with small letter __ ___
_______________ and label the two parts of the Supplies-Store adjustment with
small letter __ ____ ____________.
Record a Prepaid Insurance Adjustment.
1. Enter the amount of insurance used in the __________ ________ __________.
2. Enter the same amount in the ___________ ________ ___________.
3. Label the two parts of the adjustment with a small letter __ ____ ____________.
Record a Trial Balance on a Worksheet.
From the general ledger, record on the worksheet, in numerical order for each account
1. Account Title
2. Account Balance
Then: Total, prove, and rule the debit and credit columns.
Record Supplies Adjustments on a Worksheet.

1. Write the debit amounts in the Adjustments Debit column.
2. Write the credit amounts in the Adjustments Credit column.
3. Label the two parts of the Supplies-Office adjustment with small letter a in
parentheses and label the two parts of the Supplies-Store adjustment with small
letter b in parentheses.
Record a Prepaid Insurance Adjustment.
1. Enter the amount of insurance used in the Adjustments Credit column.
2. Enter the same amount in the Adjustments Debit column.
3. Label the two parts of the adjustment with a small letter c in parentheses.
Making and Posting Adjusting Entries
Calculating Adjustments
A change in an account balance caused by the internal operations or the passage of

time is recorded through an ________________. At the end of the period,
adjustments are made to _____________________ of assets consumed from asset
accounts to the appropriate ____________________________.
Balances not up to date as of the last day of the fiscal period must be
____________.
Adjusting the Merchandise Inventory Account
_________________ is the merchandise a business has on hand at the beginning of

a period. ___________________ is the merchandise on hand at the end of a
period. The balance of the asset account _____________________ changes only
when a ____________ _________, an actual count of all merchandise on hand and
available for sale, is taken.
When calculating the _____________for ______________________, you need to

know
 _____________________________________
 _____________________________________
Purchases and sales during the period will change the account balance. The
change in inventory is recorded as an ___________________ in the accounting
records.
To adjust Merchandise Inventory the accounts affected are

______________________, an asset account, and _______________________, a
stockholder’s equity account.
Follow these steps to enter the adjustment in the worksheet:

 In the _________________________, enter the debit amount of the adjustment.
 In the _________________________, enter the credit amount of the adjustment.
Terms review:
 ____________________ - An amount that is added to or subtracted from
an account balance to bring that balance up to date
 ________________________ - The merchandise a business has on hand
at the beginning of a period
 _________________________ - The merchandise a business has on
hand at the end of a period
 _______________________ - An actual count of all merchandise on hand
and available for sale
Main Idea
_______________ show the dollar amount of assets consumed during the period.
They also recognize the corporation’s income tax expense.
Adjusting the Supplies Account

As __________ are used, they become ____________of the business. A physical
inventory is taken at the end of the period to make an adjustment to the
_____________ account.
The accounts affected are _________________ and _____________________.
Adjusting the Prepaid Insurance Account

A ____________________ is an expense paid in advance. Insurance premiums are
a prepaid expense. An adjustment records the expired portion as a business
expense.
The accounts affected are _______________________ and ____________________.
Adjusting the Federal Corporate Income Tax Accounts

A corporation pays ___________________________ on its _________________. A
corporation estimates its federal corporate income taxes for the coming year and
pays that amount to the government in quarterly installments.
When the exact tax amount is determined, the company may find it is required to
pay additional taxes or it may qualify for a tax refund.
Key Term
 ______________________ - An expense paid in advance
Main Idea
______________________ affect the amount of net income (or net loss).
Completing the Adjusted Trial Balance Section

The balance of each Trial Balance account is ______________ with the adjustments
in the Adjustments section. The ___________________ is entered in the
appropriate _______________________________ column.
If there is no adjustment, the balance is transferred to the same column in the
Adjusted Trial Balance section.
Extending Amounts to the Balance Sheet and Income Statement Sections

Each account in the ______________________ section is _____________ to one of
the following sections:
 the _________________ section, containing temporary account balances
 the _________________ section, containing permanent account balances
Completing the Worksheet

A _________________ is drawn across the four columns in the
_______________________ ___________________. The columns are
__________. __________________________ is recorded on the worksheet. The
sections are ______________ if the two Income Statement sections are equal and
the two Balance Sheet sections are equal.
Journalizing and Posting Adjusting Entries

___________________________ update the general ledger accounts at the
_________________________. These entries come from the Adjustments section of
the worksheet.
Journalizing Adjustments
The following entries are recorded in the __________________________:
 ___________________________________
 _________________________
 _________________________
 _________________________
The debit part of the entry is recorded first. The date for adjusting entries is the
_____________________________.
Posting Adjusting Entries to the General Ledger

Adjusting entries are ____________ in the general journal and then _____________
to the general ledger accounts. This will cause the _________________ account
balances to ________ with the ___________________ and
_____________________ sections.
Key Term
 ___________________________ - Journal entries that update the
general ledger accounts at the end of a period
Calculating Adjustments
A change in an account balance caused by the internal operations or the passage of
time is recorded through an adjustment. At the end of the period, adjustments are
made to transfer the costs of assets consumed from asset accounts to the
appropriate expense accounts.
Balances not up to date as of the last day of the fiscal period must be adjusted.
Adjusting the Merchandise Inventory Account

Beginning inventory is the merchandise a business has on hand at the beginning
of a period. Ending inventory is the merchandise on hand at the end of a period.
The balance of the asset account Merchandise Inventory changes only when a
physical inventory, an actual count of all merchandise on hand and available for
sale, is taken.
When calculating the adjustment for Merchandise Inventory, you need to know
 account balance
 physical inventory amount
Purchases and sales during the period will change the account balance. The
change in inventory is recorded as an adjustment in the accounting records.
To adjust Merchandise Inventory the accounts affected are Merchandise Inventory,

an asset account, and Income Summary, a stockholder’s equity account.
Follow these steps to enter the adjustment in the worksheet:

 In the Adjustments Debit column, enter the debit amount of the adjustment.
 In the Adjustments Credit column, enter the credit amount of the adjustment.
Terms review:
 Adjustment - An amount that is added to or subtracted from an account
balance to bring that balance up to date
 Beginning inventory - The merchandise a business has on hand at the
beginning of a period
 Ending inventory - The merchandise a business has on hand at the end
of a period
 Physical inventory - An actual count of all merchandise on hand and
available for sale
Main Idea
Adjustments show the dollar amount of assets consumed during the period. They
also recognize the corporation’s income tax expense.
Adjusting the Supplies Account

As supplies are used, they become expenses of the business. A physical inventory
is taken at the end of the period to make an adjustment to the Supplies account.
The accounts affected are Supplies and Supplies Expense.
Adjusting the Prepaid Insurance Account

A prepaid expense is an expense paid in advance. Insurance premiums are a
prepaid expense. An adjustment records the expired portion as a business expense.
The accounts affected are Prepaid Insurance Expense and Insurance Expense.
Adjusting the Federal Corporate Income Tax Accounts

A corporation pays federal corporate income taxes on its net income. A
corporation estimates its federal corporate income taxes for the coming year and
pays that amount to the government in quarterly installments.
When the exact tax amount is determined, the company may find it is required to
pay additional taxes or it may qualify for a tax refund.
Key Term
 Prepaid expense - An expense paid in advance
Main Idea
Adjustments affect the amount of net income (or net loss).
Completing the Adjusted Trial Balance Section

The balance of each Trial Balance account is combined with the adjustments in the
Adjustments section. The new balance is entered in the appropriate Adjusted Trial
Balance column.
If there is no adjustment, the balance is transferred to the same column in the
Adjusted Trial Balance section.
Extending Amounts to the Balance Sheet and Income Statement Sections

Each account in the Adjusted Trial Balance section is extended to one of the
following sections:
 the Income Statement section, containing temporary account balances
 the Balance Sheet section, containing permanent account balances
Completing the Worksheet

A single rule is drawn across the four columns in the Balance Sheet and Income
Statement sections. The columns are totaled. Net income or net loss is
recorded on the worksheet. The sections are proven if the two Income Statement
sections are equal and the two Balance Sheet sections are equal.
Journalizing and Posting Adjusting Entries

Adjusting entries update the general ledger accounts at the end of a period.
These entries come from the Adjustments section of the worksheet.
Journalizing Adjustments
The following entries are recorded in the Adjustments columns:
 adjusting merchandise inventory
 adjusting supplies
 adjusting insurance
 adjusting income tax
The debit part of the entry is recorded first. The date for adjusting entries is the last
day of the period.
Posting Adjusting Entries to the General Ledger

Adjusting entries are recorded in the general journal and then posted to the general
ledger accounts. This will cause the general ledger account balances to agree with
the Income Statement and Balance Sheet sections.
Key Term
 Adjusting entries - Journal entries that update the general ledger
accounts at the end of a period
Planning and Recording a Merchandise Inventory Adjustment

________Merchandise Inventory_________
__________ _______ __________ ______
In the Adjustment Columns:

1. Write the _________ ___________.
2. Write the __________ ____________.
3. Label the two parts of this adjustment with a small letter ___ ____
___________.
Use the Accounts:
_________________ ______________
_________________ ______________
Planning and Recording an Allowance for Uncollectible Accounts Adjustment

What accounts are used for recording an allowance for uncollectible accounts
adjustment? ______________ _____ _____________ ____________ and
_____________ _____________ _____________
How is the uncollectible accounts expense estimated?
_________ _______ ____ ____________ X ____________ ____________ =
____________ ______________ ______________ ___________
To record the Adjustment for Uncollectible Accounts:

1. Enter the estimated _______________ ___________.
2. Enter the same amount in the ______________ ___________
_____________.
3. Label the two parts with a small letter ____ ______ _____________.
Planning and Recording Depreciation Adjustments
1. Subtract the asset’s __________ ____________ _________ from original cost.
2. Divide the estimated total depreciation expense by the years of estimated

___________ ________.
Beginning Accumulated Depreciation + ________________ _______________

= ____________ _________________ __________________
Original Cost – Accumulated Depreciation = ___________ _________ ___________
On the Worksheet:
1. Write the ___________ amounts.

2. Write the ___________ amounts.
3. _________ the adjustments.
Calculating Federal Income Tax and Completing a Worksheet
Before federal income tax:

Total Income Statement ________ ___________ – total income statement ________
______________ = net income before __________ ____________ ________
Recording Federal Income Tax on the Worksheet

1. Calculate the amount of _____________ __________ ______ ___________
adjustment.
2. Total and rule the ________________ __________.
3. ___________ account balances.
Complete the Worksheet.

1. ________ the Income Statement and Balance Sheet columns.
2. ____________ and ________ the net income after federal income tax.
3. ______________ the net income amount.
4. Calculate the __________ totals.
5. ________ double lines.
Planning and Recording a Merchandise Inventory Adjustment

________Merchandise Inventory_________
Increase Debit Decrease Credit
In the adjustment columns:

1. Write the debit amount
2. Write the credit amount
3. Label the two parts of this adjustment with a small letter d in parentheses.
Use the accounts:

Merchandise Inventory
Income Summary
Planning and Recording an Allowance for Uncollectible Accounts Adjustment

What accounts are used for recording an allowance for uncollectible accounts
adjustment? Allowance for Uncollectible Accounts and Uncollectible
Accounts Expense
How is the uncollectible accounts expense estimated?

Total Sales on Account X Estimated Percentage = Estimated Uncollectible
Accounts Expense
To record the adjustment for Uncollectible Accounts:

1. Enter the estimated uncollectible amount.
2. Enter the same amount in the Adjustments Debit column.
3. Label the two parts with a small letter e in parentheses.
Planning and Recording Depreciation Adjustments

1. Subtract the asset’s estimated salvage value from original cost.
2. Divide the estimated total depreciation expense by the years of estimated
useful life.
Beginning Accumulated Depreciation + Depreciation Expense

= Ending Accumulated Depreciation
Original Cost – Accumulated Depreciation = Ending Book Value
On the Worksheet:
1. Write the debit amounts.
2. Write the credit amounts.
3. Label the adjustments.
Calculating Federal Income Tax and Completing a Worksheet

Before federal income tax:
Total Income Statement Credit column – Total Income Statement Debit column
= net income before federal income tax
Recording Federal Income Tax on the Worksheet

1. Calculate the amount of federal income tax expense adjustment.
2. Total and rule the adjustments columns.
3. Extend account balances.
Complete the Worksheet

1. Total the Income Statement and Balance Sheet columns.
2. Calculate and enter the net income after federal income tax.
3. Extend the net income amount.
4. Calculate the column totals.
5. Rule double lines.
Recording Adjusting Entries from a Worksheet

(On a new general journal page)
1. Heading - _____________________ ___________________
2. ____________
3. Identify the first adjustment (from the _________________ ________________ in
the worksheet).
4. __________________ __________________
5. __________________ __________________
6. __________________ __________________
7. __________________ __________________
8. _______________________________ down the Adjustments columns.
Adjusting Entries for:

_____________________ _______ ____________________ _______________
_______________________ _____________________
__________________ - __________________
__________________ - __________________
___________________ _____________________
____________________ ___________________ - ____________ ______________
____________________ ___________________ - ____________ ______________
___________________ __________________ __________ ___________________
Recording Adjusting Entries from a Worksheet

(On a new general journal page)
1. Heading - Adjusting Entries
2. Date
3. Identify the first adjustment (from the adjustments columns in the worksheet).
4. Account debited
5. Debit amount
6. Account credited
7. Credit amount
8. Continue down the Adjustments columns.
Adjusting entries for:

Allowance for Uncollectible Accounts
Merchandise Inventory
Supplies – Office
Supplies – Store
Prepaid Insurance
Accumulated Depreciation – Office Equipment
Accumulated Depreciation – Store Equipment
Federal Income Tax Payable
Making and Posting Closing Entries
Main Idea
A corporation’s net income (or net loss) is closed to ______________________.
Steps for Closing the Ledger

A corporation does not have a withdrawals account, so there are only three steps to
closing the ledger for a merchandising business organized as a corporation:
 Close accounts with balances in the __________________________
column to Income Summary.
 Close accounts with balances in the __________________________
column to Income Summary.
 Close ___________________________ to Retained Earnings.
If there is a net loss, credit _________________________ for the amount and debit
______________________ for the amount.
Closing the General Ledger

When closing the general ledger, write ___________________________ for each
posting in the Description column of the general ledger account.
Each posting should produce a ___________________ in a temporary account in

the general ledger.
Main Idea
A corporation’s net income (or net loss) is closed to Retained Earnings.
Steps for Closing the Ledger

A corporation does not have a withdrawals account, so there are only three steps to
closing the ledger for a merchandising business organized as a corporation:
 Close accounts with balances in the Income Statement Credit column to
Income Summary.
 Close accounts with balances in the Income Statement Debit column to
Income Summary.
 Close Income Summary to Retained Earnings.
If there is a net loss, credit Income Summary for the amount and debit Retained
Earnings for the amount.
Closing the General Ledger

When closing the general ledger, write Closing Entry for each posting in the
Description column of the general ledger account.
Each posting should produce a zero balance in a temporary account in the general
ledger.
Recording Closing Entries for ________ __________ _________

(Start a new general journal page.)
Income Summary
Debit Credit
_________ ___________ ________________
Closing entry for _________ _____ _______ __________:

1. Heading – _________ ________
2. Date
3. _______ ___ ________
4. _______ ___ _______ ________
Closing entry for income statement _________ _____ _______ __________:

1. Date
2. ________ ________-Income Summary
3. ________ ___ _______
4. Debit amount
Closing entry to ________ _____ ________:

1. Date
2. _______ _______ _________
3. _______ __________ _________
Closing entry for ___________:

1. Date
2. _______ __________ _________
3. ________ ___________
Recording Closing Entries for Income Statement Accounts

(Start a new general journal page.)
Income Summary
Debit Credit
Total Expenses Revenue
Closing entry for accounts with credit balances:

1. Heading – Closing Entries
2. Date
3. Debits to close
4. Credit to Income Summary
Closing entry for income statement accounts with debit balances:

1. Date
2. Account debited-Income Summary
3. Credits to close
4. Debit amount
Closing entry to record net income:

1. Date
2. Debit Income Summary
3. Credit Retained Earnings
Closing entry for dividends:

1. Date
2. Debit Retained Earnings
3. Credit Dividends
Preparing a Post-Closing Trial Balance
A _______________________________ is prepared at the end of the accounting

period to prove the general ledger accounts are in balance.
An example of a Trial Balance (Balance Sheet) is included in Activity 31 on

3.03 PowerPoint Notes 11 – GLENCOE (Page 9 of that set).
A post-closing trial balance is prepared at the end of the accounting period to prove
the general ledger accounts are in balance.
An example of a Trial Balance (Balance Sheet) is included in Activity 31 on

3.03 PowerPoint Notes 11 – GLENCOE (Page 9 of that set).
Post-Closing Trial Balance

1. Heading – name, _________ ___________-__________ _____________, date
2. _____________ __________ __________ ________________
3. _____________ balances
4. _____________ balances
5. The word _______________
6. ________________
7. ______________ ______________
Accounting Cycle for a Merchandising Business

1. _____________ _____________ are checked and transactions are analyzed.
2. Transactions are recorded in _______________.
3. Journal entries are ____________ to the accounts payable ledger, the accounts
receivable ledger, and the general ledger.
4. _______________ of accounts payable and account receivables are prepared
from the subsidiary ledgers.
5. A ________________ is prepared from the _____________ ______________.
6. ________________ _________________ are prepared.
7. ______________ and _____________ _____________ are ________________
from the worksheet.
8. Adjusting and closing entries are _______________ to the general ledger.
9. A _________-_____________ ____________ _______________ of the general
ledger is prepared.
Post-Closing Trial Balance

1. Heading – name, Post Closing-Trial Balance, date
2. Accounts that have balances
3. Debit balances
4. Credit balances
5. The word Totals
6. Totals
7. Double lines
Accounting Cycle for a Merchandising Business

1. Source documents are checked and transactions are analyzed.
2. Transactions are recorded in journals.
3. Journal entries are posted to the accounts payable ledger, the accounts
receivable ledger, and the general ledger.
4. Schedules of accounts payable and account receivables are prepared from the
subsidiary ledgers.
5. A worksheet is prepared from the general ledger.
6. Financial statements are prepared.
7. Adjusting and closing entries are journalized from the worksheet.
8. Adjusting and closing entries are posted to the general ledger.
9. A post-closing trial balance of the general ledger is prepared.
Preparing a Financial Statement
Main Idea
Owner’s equity in a corporation is called .
Accounting for a Corporation

A corporation may be owned by one person or thousands. The of
a corporation is represented by .
Recording the Ownership of a Corporation

Corporations have a instead of the sole
proprietorship’s owner’s capital account. This is a that
is the value of the .
Reporting Stockholders’ Equity in a Corporation

The section and
must be reported in :
 __________________________________________
 __________________________________________
Stockholders contribute to equity by . This amount

is recorded in the account.
The by a corporation is called retained

earnings. This amount is recorded in the .
Compare the capital section of the balance sheet to a sole proprietorship and a
corporation.
__________________
Owner’s Equity Stockholders’ Equity
Owner’s Capital Capital Stock
Retained Earnings
For accounting information to be useful, it must be comparable. allows

 information to be compared from and
 the comparison of information .
is the confidence users have that financial information is

reasonably free from bias and error.
is that all information that would affect decisions of financial

statement users be disclosed in the financial reports.
means that financial reports include enough information to be complete.
means that relevant information should be included in financial reports.
A merchandising corporation can prepare four financial statements:

 the _______________________________
 the _______________________________
 the _______________________________
 the _______________________________
Main Idea
A merchandiser’s income statement has __________________________ section
and a corporation’s income statement shows __________________________.
The Income Statement

When preparing the income statement, the ________________________ and the
__________________________ are applied.
Merchandising businesses have the ________________________________
_________________________ to customers, so the income statement has five
sections instead of the service business’s three sections:
Sections of a merchandising business’s income statement:

 _____________________________
 _____________________________
 _____________________________
 _____________________________
 _____________________________
The Revenue Section

This section reports the ____________ for the period. To complete the revenue
section:
 Enter __________: at the left edge on the first line.
 On the second line, enter ___________(indented).
 Enter __________________________ on the next lines.
 Add the balances of the ______________________________and enter
the total below Sales in the third amount column.
 Enter the words _____________________ (indented) on the next line.
Subtract the total of the contra revenue accounts from the Sales account
and enter the amount in the fourth amount column.
The Cost of Merchandise Sold Section

The cost of merchandise sold is calculated as follows:
__________________________________________
Plus: _____________________________________
Equals: ___________________________________
Computing the cost of merchandise sold requires two steps:

 Determine the cost of all merchandise _______________________.
 Calculate the cost of merchandise _____________.
Calculating Cost of Merchandise Available for Sale

Add ________________ to the beginning inventory amount. Use the following to
calculate net purchases:
_______________________________
Plus: __________________________
Equals: ________________________
Less: __________________________
Less: __________________________________
Equals: ________________________
Calculating Cost of Merchandise Sold

_________________________________________
Less: ____________________________________
Equals: __________________________________
Example:
Heading
Company Name
Name of Report
Period covered
Revenue Section
Revenue Account – Title 3,220,450
Less contra accounts- Title 2,730 2,730
Net Sales 317,720
Cost of Merchandise
Beginning Inventory 84,921
Purchases 206,700
Plus: Transportation In 4,036
Cost of Delivered Merchandise 210,736
Less: Purchase Discounts 1,340
Purchase Returns & Allowances 1,800 3,140
Net Purchases 207,596
Cost of merchandise available 292,517
Less ending inventory 81,385
Cost of merchandise sold 211,132
Gross Profit on Sales 106,588
The ____________________________ is the profit made before operating

expenses are deducted. Subtracting the cost of merchandise sold from net sales
will give the gross profit on sales.
The Operating Expenses Section
The _______________________ are the costs of goods and services used in the
process of earning revenue. Operating expenses can be further classified into
_______ _______________ (incurred to sell or market the merchandise sold) and
________________________________ (related to the management of the
business).
The Net Income Section
The federal corporate income tax amount is presented separately on the income
statement so the income statement shows the amount of ___________________.
Operating income is the amount of income earned _______________ deducting
federal corporate income ____________.
Example:
Total Operating Expenses 63,918
Operating Income 42,669
Less: Federal Income Tax 9,995
Net Income 32,674
Analyzing Amounts on the Income Statement

The information reported on financial statements is expressed in dollars.
____________ __________________ reports each dollar amount as a
_________________ of a base amount, which enables users to more easily view
the relationships among the items on the financial statements.
Vertical Analysis Example
Revenue:
Sales 320,450 100.86 %
Less: Sales Discounts 730 .23
Sales Returns & Allowances 2,000 .63
Net Sales 317,720 100.00 %
Cost of Merchandise Sold:
Merch. Inventory, Jan. 1 84,921 26.73 %
Net Purchases 207,596 65.34
Merch. Available for Sale 292,517 92.07 %
Merch. Inventory Dec. 31 81,385 25.62
Cost of Merchandise Sold 211,132 66.45 %
Gross Profit on Sales 106,588 33.55 %
Operating Expenses:
Advertising Expense 2,450 .77 %
Bankcard Fees Expense 4,199 1.32
Insurance Expense 125 .04
Maintenance Expense 3,519 1.11
Miscellaneous Expense 348 .11
Payroll Tax Expense 3,827 1.20
Rent Expense 14,000 4.41
Salaries Expense 29,375 9.25
Supplies Expense 3,710 1.17
Utilities Expense 2,365 .74
Total Operating Expenses 63,918 20.12 %
Operating Income 42,670 13.43 %
Fed. Corp. Inc. Tax Exp. 9,995 3.15
Net Income 32,675 10.28 %
Key Terms Review

 ____________________ - The amount of sales for the period less any
sales discounts, returns, and allowances
 ____________________ - The total cost of all merchandise purchased
during a period, less any purchases, discounts, returns, and allowances
 ____________________ - The amount of profit made during the fiscal
period before expenses are deducted; found by subtracting the cost of
merchandise sold from net sale
 ____________________ - The cash spent or assets consumed to earn a
revenue for a business; operating expenses do not include federal income
tax expense
 ____________________ - Expenses a business incurs to sell or market
its merchandise or services
 ____________________ - Costs related to the management of a business
(for example, office expenses)
 ____________________ - The excess of gross profit over operating
expenses; taxable income
 ____________________ - A method of analysis that expresses financial
statement items as percentages of a base amount
The Statement of Retained Earnings

A ________________________________ reports the changes in the Retained
Earnings account during the period. The changes result from business operations
dividends.
The statement is prepared from information on the worksheet and is used when
preparing the balance sheet.
The Balance Sheet

The ____________________ reports the balances of all asset, liability, and
stockholders’ equity accounts for a specific date. The assets are listed first, followed
by the Liabilities section and the Stockholders’ Equity section.
Balance Sheet Example:
On Your Mark Athletic Wear

Balance Sheet
December 31, 20XX
Assets
Cash in Bank 15,179
Accounts Receivable 10,404
Merchandise Inventory 81,385
Supplies 1,839
Prepaid Insurance 1,375
Delivery Equipment 19,831
Office Equipment 9,825
Store Equipment 5,200
Total Assets 145,038
Liabilities
Accounts Payable 13,850
Fed. Corp. Inc. Tax Payable 155
Employees’ Fed. Inc. Tax Payable 640
Employees’ State Inc. Tax Payable 80
Social Security Tax Payable 248
Medicare Tax Payable 58
Federal Unemployment Tax Payable 18
State Unemployment Tax Payable 115
Sales Tax Payable 2,428
Total Liabilities 17,592
Stockholders’ Equity
Capital Stock 75,000
Retained Earnings 52,446
Total Stockholders’ Equity 127,446
Total Liabilities and Stockholders’ Equity 145,038
Main Idea
Owner’s equity in a corporation is called stockholders’ equity.
Accounting for a Corporation

A corporation may be owned by one person or thousands. The ownership of a
corporation is represented by shares of stock.
Recording the Ownership of a Corporation

Corporations have a Capital Stock account instead of the sole proprietorship’s
owner’s capital account. This is a stockholders’ equity account that is the value of
the stockholders’ claims to the corporation.
Reporting Stockholders’ Equity in a Corporation

The owner’s equity section is called stockholders’ equity and must be reported in
two parts:
 equity contributed by the stockholders
 equity earned through business profits
Stockholders contribute to equity by purchasing shares of stock. This amount is

recorded in the Capital Stock account.
The net income earned and retained by a corporation is called retained earnings.
This amount is recorded in the Retained Earnings account.
Compare the capital section of the balance sheet to a sole proprietorship and a
corporation.
Sole Proprietorship Corporation

Owner’s Equity Stockholders’ Equity
Owner’s Capital Capital Stock
Retained Earnings
For accounting information to be useful, it must be comparable. Comparability

allows
 information to be compared from one period to another and
 the comparison of information between businesses.
Reliability is the confidence users have that financial information is reasonably free
from bias and error.
Relevance is that all information that would affect decisions of financial statement
users be disclosed in the financial reports.
Full disclosure means that financial reports include enough information to be

complete.
Materiality means that relevant information should be included in financial reports.
A merchandising corporation can prepare four financial statements:

 the income statement
 the statement of returned earnings
 the balance sheet
 the statement of cash flow
Main Idea
A merchandiser’s income statement has a Cost of Merchandise Sold section, and
a corporation’s income statement shows income tax expense.
The Income Statement

When preparing the income statement, the revenue realization and the matching
principles are applied.
Merchandising businesses have the cost of merchandise purchased and resold

to customers, so the income statement has five sections instead of the service
business’s three sections:
Sections of a merchandising business’s income statement:

 Revenue
 Cost of Merchandise Sold
 Gross Profit on Sales
 Operating Expenses
 Net Income (or Loss)
The Revenue Section

This section reports the net sales for the period. To complete the revenue section:
 Enter Revenue: at the left edge on the first line.
 On the second line, enter Sales (indented).
 Enter deductions from Sales on the next lines.
 Add the balances of the contra revenue accounts and enter the total
below Sales in the third amount column.
 Enter the words Net Sales (indented) on the next line. Subtract the total
of the contra revenue accounts from the Sales account and enter the
amount in the fourth amount column.
The Cost of Merchandise Sold Section

The cost of merchandise sold is calculated as follows:
Beginning Merchandise Inventory
Plus: Net Purchases During the Period
Equals: Cost of Merchandise Available for Sale
Computing the cost of merchandise sold requires two steps:

 Determine the cost of all merchandise available for sale.
 Calculate the cost of merchandise sold.
Calculating Cost of Merchandise Available for Sale

Add net purchases to the beginning inventory amount. Use the following to
calculate net purchases:
Purchases
Plus: Transportation In
Equals: Cost of Delivered Merchandise
Less: Purchases Discounts
Less: Purchases Returns and Allowances
Equals: Net Purchases
Calculating Cost of Merchandise Sold

Cost of Merchandise Available
Less: Ending Merchandise Inventory
Equals: Cost of Merchandise Sold
Example:
Heading
Company Name
Name of Report
Period covered
Revenue Section
Revenue Account – Title 3,220,450
Less contra accounts- Title 2,730 2,730
Net Sales 317,720
Cost of Merchandise
Beginning Inventory 84,921
Purchases 206,700
Plus: Transportation In 4,036
Cost of Delivered Merchandise 210,736
Less: Purchase Discounts 1,340
Purchase Returns & Allowances 1,800 3,140
Net Purchases 207,596
Cost of merchandise available 292,517
Less ending inventory 81,385
Cost of merchandise sold 211,132
The gross profit on sales is the profit made before operating expenses are
deducted. Subtracting the cost of merchandise sold from net sales will give the
gross profit on sales.
The Operating Expenses Section
The operating expenses are the costs of goods and services used in the process of
earning revenue. Operating expenses can be further classified into selling
expenses (incurred to sell or market the merchandise sold) and administrative
expenses (related to the management of the business).
The Net Income Section
The federal corporate income tax amount is presented separately on the income
statement so the income statement shows the amount of operating income.
Operating income is the amount of income earned before deducting federal
corporate income taxes.
Example:
Total Operating Expenses 63,918
Operating Income 42,669
Less: Federal Income Tax 9,995
Net Income 32,674
Analyzing Amounts on the Income Statement

The information reported on financial statements is expressed in dollars. Vertical
analysis reports each dollar amount as a percentage of a base amount, which
enables users to more easily view the relationships among the items on the financial
statements.
Vertical Analysis Example
Revenue:
Sales 320,450 100.86 %
Less: Sales Discounts 730 .23
Sales Returns & Allowances 2,000 .63
Net Sales 317,720 100.00 %
Cost of Merchandise Sold:
Merch. Inventory, Jan. 1 84,921 26.73 %
Net Purchases 207,596 65.34
Merch. Available for Sale 292,517 92.07 %
Merch. Inventory Dec. 31 81,385 25.62
Cost of Merchandise Sold 211,132 66.45 %
Gross Profit on Sales 106,588 33.55 %
Operating Expenses:
Advertising Expense 2,450 .77 %
Bankcard Fees Expense 4,199 1.32
Insurance Expense 125 .04
Maintenance Expense 3,519 1.11
Miscellaneous Expense 348 .11
Payroll Tax Expense 3,827 1.20
Rent Expense 14,000 4.41
Salaries Expense 29,375 9.25
Supplies Expense 3,710 1.17
Utilities Expense 2,365 .74
Total Operating Expenses 63,918 20.12 %
Operating Income 42,670 13.43 %
Fed. Corp. Inc. Tax Exp. 9,995 3.15
Net Income 32,675 10.28 %
Key Terms Review

 Net sales - The amount of sales for the period less any sales discounts,
returns, and allowances
 Net purchases - The total cost of all merchandise purchased during a
period, less any purchases, discounts, returns, and allowances
 Gross profit on sales - The amount of profit made during the fiscal period
before expenses are deducted; it is found by subtracting the cost of
merchandise sold from net sales
 Operating expenses - The cash spent or assets consumed to earn a
revenue for a business; operating expenses do not include federal income
tax expense
 Selling expenses - Expenses a business incurs to sell or market its
merchandise or services
 Administrative expenses - Costs related to the management of a
business (for example, office expenses)
 Operating income - The excess of gross profit over operating expenses;
taxable income
 Vertical analysis - A method of analysis that expresses financial
statement items as percentages of a base amount
The Statement of Retained Earnings

A statement of retained earnings reports the changes in the Retained Earnings
account during the period. The changes result from business operations and
dividends.
The statement is prepared from information on the worksheet and is used when
preparing the balance sheet.
The Balance Sheet

The balance sheet reports the balances of all asset, liability, and stockholders’ equity
accounts for a specific date. The assets are listed first, followed by the Liabilities
section and the Stockholders’ Equity section.
Balance Sheet Example:
On Your Mark Athletic Wear

Balance Sheet
December 31, 20XX
Assets
Cash in Bank 15,179
Accounts Receivable 10,404
Merchandise Inventory 81,385
Supplies 1,839
Prepaid Insurance 1,375
Delivery Equipment 19,831
Office Equipment 9,825
Store Equipment 5,200
Total Assets 145,038
Liabilities
Accounts Payable 13,850
Fed. Corp. Inc. Tax Payable 155
Employees’ Fed. Inc. Tax Payable 640
Employees’ State Inc. Tax Payable 80
Social Security Tax Payable 248
Medicare Tax Payable 58
Federal Unemployment Tax Payable 18
State Unemployment Tax Payable 115
Sales Tax Payable 2,428
Total Liabilities 17,592
Capital Stock 75,000
Retained Earnings 52,446
Total Stockholders’ Equity 127,446
Total Liabilities and Stockholders’ Equity 145,038
Preparing an Income Statement

Heading
________________ ______________
________________ ___ _____________
_______________ _____________
Revenue Section
___________ _________ - Title amount
_____ ________ ________ - Titleamounts total amount
______ ________ Amount %
Cost of Merchandise
___________ __________ amount
______________ amount
________ ___________ amounts total amount
______ ________________ total amount
______ _____ ___ ____________ ____________ Amount
______ ________ ____________ amount
_____ ___ ______________ _________ Amount %
________ ________ Amount %
Expenses Section
___________ amounts
________ ___________ Amount %
____ ________ _________ _________ ________ ____ Amount %
_____ __________ ___________ ______ __________ amount
___ ______ _____ ______ ______ ___ Amount
Preparing a Statement of Stockholders’ Equity

Heading
Name of company
________________ ___ ______________ _________
___________ __________
___________ _________
______ ________
___________ of the year- _________ ________ Total ______
Stock issued _________ the year- shares Total Value
Total Stock issued at the ____ ___ ____ _____- _______ _______ Total ______
____________ _____________
____________ ___________ Amount
____ _______ ______ Federal Income ____ Amount
____________ ___________ Amount
Increase in _________ _________ Amount
________ _________ Amount
_____ ___________ ________ ______ _____ Amount
Preparing a Balance Sheet

Use your worksheet.
Heading
Company name
________ ______
______
________
________ _______
Cash Amount
Petty Cash Amount
_________ ___________ Amount
____ _________ ___ ____________ _______ Amount Amount
____________ __________ Amount
__________ Amount
________ __________ Amount
______ ________ _______ Amount
______ ________
_______ __________ Amount
____ ___________ __________-Office Equip. Amount Amount
______ __________ Amount
____ ___________ __________-Store Equip. Amount Amount
______ ______ ______ Amount
______ _______ Amount
_____________
_________ _____________
Accounts Payable Amount
Federal Income Tax Payable Amount
Sales Tax Payable Amount
Dividends Payable Amount
_________ _____________ Amount
_______________ _________
_________ _______ Amount
__________ __________ Amount
_______ ____________ ________ Amount
_____ _________ ____ ___________ ______ Amount
Preparing an Income Statement

Heading
Company name
Name of report
Period covered
Revenue Section
Revenue Account - Title amount
Less Contra Accounts - Title amounts total amount
Net Sales Amount %
Cost of Merchandise
Beginning Inventory amount
Purchases amount
Contra Purchases amounts total amount
Net Purchases total amount
Total Cost of Merchandise Available Amount
Less Ending Inventory amount
Cost of Merchandise Sold Amount %
Gross Profit Amount %
Expenses Section
Expenses amounts
Total Expenses Amount %
Net Income Before Federal Income Tax Amount %
Less Federal Income Tax Expense amount
Net Income After Federal Income Tax Amount
Preparing a Statement of Stockholders’ Equity

Heading
Name of company
Statement of Stockholders’ Equity
Period covered
Capital Stock
Par Value
Beginning of the year- shares issued Total Value
Stock issued during the year- shares Total Value
Total Stock issued at the end of the year- shares issued Total Value
Retained Earnings
Beginning Balance Amount
Net Income After Federal Income Tax Amount
Dividends Declared Amount
Increase in Retained Earnings Amount
Ending Balance Amount
Total Stockholders’ Equity, ending date Amount
Preparing a Balance Sheet

Use your worksheet.
Heading
Company name
Balance Sheet
Date
Assets
Current Assets:
Cash Amount
Petty Cash Amount
Accounts Receivable Amount
Less Allowance for Uncollectible Accounts Amount Amount
Merchandise Inventory Amount
Supplies Amount
Prepaid Insurance Amount
Total Current Assets Amount
Plant Assets:
Office Equipment Amount
Less Accumulated Depreciation-Office Equip.Amount Amount
Store Equipment Amount
Less Accumulated Depreciation-Store Equip. Amount Amount
Total Plant Assets Amount
Total Assets Amount
Liabilities
Current Liabilities:
Accounts Payable Amount
Federal Income Tax Payable Amount
Sales Tax Payable Amount
Dividends Payable Amount
Total Liabilities Amount
Capital Stock Amount
Retained Earnings Amount
Total Stockholders’ Equity Amount
Total Liabilities and Stockholders’ Equity Amount

3.03 Key Terms

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3.03 Key Terms

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3.

A large business needs to maintain an accounts payable subsidiary ledger:

The most important thing a retail business purchases is merchandise to resell.

A business that makes many purchases on credit will set up an _______________

The individual accounts are summarized in the ____________________________

Purchases Accounts Payable A. P. – Subsidiary Ledger

Dr. Cr. Dr. Cr. Dr. Cr.

A _________________ occurs when a business returns merchandise for a full credit.

A _____________________ occurs when a business keeps unsatisfactory merchandise

A _________________________ is used to notify suppliers of a purchase return or

In recording a purchase returns and allowances transaction:

To post to the accounts payable subsidiary ledger from a purchases journal:

To post from the General Debit column of the purchases journal:

Complete the purchases journal by following these steps:

A large business needs to maintain an accounts payable subsidiary ledger:

The most important thing a retail business purchases is merchandise to resell.

Purchases Accounts Payable A. P. – Subsidiary Ledger

Dr. Cr. Dr. Cr. Dr. Cr.

A purchase allowance occurs when a business keeps unsatisfactory merchandise but

A debit memorandum is used to notify suppliers of a purchase return or request for

In recording a purchase returns and allowances transaction:

Posting to the accounts payable subsidiary ledger from a purchases journal:

Complete the purchases journal by following these steps:

100.00 One page per each vendor

One controlling account

Opening an Account in the Accounts Payable Subsidiary Ledger

DATE POST CREDIT

Posting from the Purchases Journal to the Accounts Payable Ledger

CASH PAYMENTS JOURNAL Page 21

CK POST GENERAL ACCOUNTS PURCHASES

Nov. 7 Syn Arts 294 260 1,050.00 1,050.00

How do you prove the accounts payable ledger?

3.03 PowerPoint Notes 1 Liabilities

DATE POST CREDIT

31. Write the4vendor name. 5 6

Posting from the Purchases Journal to the Accounts Payable Ledger

CASH PAYMENTS JOURNAL Page 21

CK POST GENERAL ACCOUNTS PURCHASES

Nov. 7 Syn Arts 294 260 1,050.00 1,050.00

1. Write the date.

Is there anything different about the posting?

How do you prove the accounts payable ledger?

Steps to post transactions to the accounts receivable subsidiary ledger:

Footing, Proving, Totaling, and Ruling the Sales Journal

Posting the Total of the Sales Credit Column

4. Compute the ________________ and enter it in the Credit Balance column.

Posting the Total of the Sales Tax Payable Credit Column

4. Compute the new balance and enter it in the ___________________________.

Posting the Total of the Accounts Receivable Debit Column

4. Compute the _____________________ and enter it in the Debit Balance column.

Key Terms Review

 _________________ -- A special journal used to record only the sale of

 ______________- A column total written in small pencil figures

Posting to the Accounts Receivable Subsidiary Ledger

Posting the General Credit Column

Footing, Proving, Totaling, and Ruling the Cash Receipts Journal

Posting Column Totals to the General Ledger

Using the Schedule of Accounts Receivable

Steps to post transactions to the accounts receivable subsidiary ledger:

Footing, Proving, Totaling, and Ruling the Sales Journal

Posting the Total of the Sales Credit Column

Posting the Total of the Sales Tax Payable Credit Column

Posting the Total of the Accounts Receivable Debit Column

2. Write the name of ___.

3. Write the _____ _.

5. Write the of incorrectly charged _____.

2. Write the general journal ___.

4. Calculate and write the new _ ____.

5. Write the appropriate _ __ in the Post. Ref. columns.

1. Write the .