Comprehensive Problem: Is Co. A Merchandising Business?

Comprehensive Problemmore Co Is A Merchandising Business The Accoun

Comprehensive Problem More Co. is a merchandising business. The account balances for More Co. as of November 30, 2012, include cash, accounts receivable, merchandise inventory, prepaid insurance, store supplies, store equipment, accumulated depreciation on store equipment, accounts payable, salaries payable, interest payable, note payable, owner’s capital, owner’s drawing, and various revenue and expense accounts. The company uses a perpetual inventory system and the last-in, first-out (LIFO) costing method. During December, multiple transactions occurred, including purchases, sales, cash receipts, and payments, along with adjustments for inventory and depreciation. The assignment involves recording balances, journalizing transactions, posting to ledgers, preparing schedules and trial balances, adjusting entries, financial statements, closing entries, and preparing a post-closing trial balance.

Paper For Above instruction

Introduction

More Co., a merchandising enterprise operating under the perpetual inventory system with the LIFO valuation method, faces various operational transactions and reporting requirements for December 2012. This complex scenario encompasses account balancing, transaction journalization, ledger posting, preliminary financial statement preparation, adjustments, and closing procedures, culminating in a comprehensive understanding of accounting processes for a merchandising business.

Balance Entry and Initial Accounts

The initial step involves recording the balances of all accounts as of November 30, 2012. These include cash, receivables, inventories, fixed assets, liabilities, and owner’s equity accounts. Proper classification into appropriate general ledger accounts sets the foundation for transaction recording and financial reporting.

Transaction Analysis and Journalization

The series of transactions in December span purchase of inventory, sale transactions, receipt and payment of cash, returns, discounts, and miscellaneous expenses. Each transaction must be accurately recorded in the relevant journal—sales journal, purchases journal, cash receipts journal, cash payments journal, or general journal. For instance, the purchase of four TV C units on December 3 is recorded in the purchase journal with detailed account analysis, including purchase discounts and freight costs, following the company's policies to ignore transportation-in and purchase discounts in inventory computations for simplicity.

Sales transactions for multiple television units at various prices involve recording sales and corresponding receivables, considering discounts and returns. Cash receipts, such as payments from Marie Co. and McKenzie Co., are documented alongside sales, while cash disbursements cover expenses like rent, advertising, salaries, supplies, and equipment purchases. Each account’s correct posting ensures ledger balance accuracy.

Ledger Posting and Schedule Preparation

Subsequently, journal entries are posted to subsidiary ledgers for accounts receivable and payable, ensuring detailed customer and vendor balances. The totals from subsidiary accounts should reconcile with general ledger control accounts, verified through schedule preparation for accounts receivable and payable. This step ensures accuracy and completeness in the reporting process.

Trial Balance and Adjustments

Preliminarily, an unadjusted trial balance compiles all ledger balances, serving as a benchmark for subsequent adjustments such as inventory valuation, depreciation, accrued salaries, and interest expense. The inventory at December 31 is adjusted to reflect physical count, while depreciation on store equipment is derived using the straight-line method over ten years. The accrued salaries and interest payable are calculated based on outstanding obligations on December 31.

Financial Statements

Post adjustments, the preparation of a multiple-step income statement highlights gross profit, operating expenses, and net income. The statement of owner’s equity illustrates changes due to owner’s investments and withdrawals, alongside net income. A classified balance sheet presents assets categorized as current and non-current, liabilities classified as current and long-term, and owner’s equity, maintaining accounting equation integrity.

Closing Entries and Post-Closing Trial Balance

Closing entries are journalized and posted to transfer temporary account balances to retained earnings or owner’s capital, marking the end of the accounting cycle. After closing, a post-closing trial balance confirms the equality of debits and credits, ensuring readiness for the next accounting period.

Conclusion

This comprehensive process illustrates the systematic approach required for accurate financial record-keeping and reporting in a merchandising business context, integrating account management, transaction recording, adjustment procedures, and financial statement preparation according to standard accounting principles.

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