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Prepare and analyze a comprehensive set of accounting records for Randiddle Co., a merchandising business, based on detailed transactions for December 2012. Tasks include journalizing sales, purchases, cash receipts, and payments; updating subsidiary ledgers; calculating inventory using the perpetual FIFO method; adjusting for inventory, depreciation, accrued expenses, and bad debts; preparing financial statements; and completing closing procedures, all adhering to proper accounting standards and practices.

Paper For Above instruction

Randiddle Co. is a merchandising company specializing in microwave ovens, with detailed financial transactions occurring in December 2012. This essay presents a thorough analysis of the company's accounting activities, starting from journal entries, ledger updates, inventory management, adjusting entries, and finally culminating in the preparation of financial statements and closing procedures. Emphasizing proper accounting methods, this discussion illustrates how Randiddle Co.'s recording practices ensure accurate financial reporting and compliance with typical accounting standards.

Introduction

Accurate financial reporting is essential for business sustainability, accountability, and decision-making. In the case of Randiddle Co., a retail seller of microwave ovens, the company maintained detailed transaction records in December 2012. The company's accounting framework entailed meticulous journal entries, ledger updates, inventory tracking via a perpetual FIFO system, and adjusting entries to reflect true financial positions at year-end. This paper discusses each of these components, highlighting their role in the broader accounting cycle.

Journal Entries and Ledger Updates

The initial step in the accounting process involves recording every transaction via journal entries. Randiddle Co.'s December transactions encompassed sales of microwave ovens, purchases from suppliers, receipt of cash, payment of expenses, and returns. For instance, the sale of two 1200-watt microwaves for cash on December 2 would be debited to Cash and credited to Sales, capturing revenue inflow. Similarly, purchase of microwaves from Matt Co. on December 4 would involve debiting Merchandise Inventory and crediting Accounts Payable, reflecting an increase in inventory and liability.

Subsequently, these journal entries feed into the subsidiary ledgers. The Accounts Receivable ledger updates customer balances, capturing sales and collections, while the Accounts Payable ledger records amounts owed to vendors like Matt Co., Prince Co., and others. Each transaction impacts specific accounts, with the balances continuously updated to mirror real-time financial standing. For example, the sale to Briana Co. on December 6, payable within terms 2/10, n/30, would increase Accounts Receivable and decrease inventory accordingly, while payment on December 21 would diminish receivables and increase cash.

Inventory Management and Cost of Goods Sold (COGS)

Randiddle Co. employs the perpetual FIFO inventory system, which records inventory costs as they occur, facilitating precise COGS calculation. The inventory control sheet tracks units purchased and sold, including units and costs per unit. For example, on November 30, the total inventory comprises different microwaves, such as a 900-watt and a 1199-watt units, valued accordingly.

When sales occur, COGS is recognized based on the earliest inventory costs, aligning with FIFO principles. For instance, the sale of microwaves on December 6 would use the cost of inventory for the earliest units available—say, a 1000-watt microwave at a specified cost—deducted from inventory, affecting the inventory account and COGS in the income statement. The inventory account also reflects new purchases, with costs added and inventory valuations updated daily.

Adjustments and Year-End Accounting

To accurately represent the company's financial position at year-end, several adjustments are necessary. These include inventory valuation, depreciation, accrued expenses, and bad debt provisions. The physical inventory on December 31 is valued at $1,090, which differs from the book balance, requiring an adjustment to reflect actual stock.

Depreciation expense for store equipment, using the straight-line method over ten years with no salvage value, must be calculated based on equipment cost ($1,200). The annual depreciation amounts to $120, with a monthly expense of $10, recognized on December 31. Likewise, accrued salaries totaling $1,615 for sales and administrative staff are recorded as liabilities.

Prepaid expenses like insurance are adjusted for the period expired during the year ($2,250). Store supplies on hand need to be counted and adjusted accordingly, reducing supplies expense. For bad debts, an allowance is created based on the given net realizable value of receivables ($6,313), adjusting the Allowance for Doubtful Accounts and Bad Debt Expense.

Interest expense on a note payable at 8% must be accrued for one month, calculated on the note's principal amount, and the entry made accordingly.

Financial Statement Preparation

Following the adjustments, the company prepares a multiple-step income statement, detailing gross profit, operating expenses, and net income. The statement of owner’s equity reflects changes from owner transactions and net income, culminating in the retained earnings balance. The classified balance sheet categorizes assets into current and non-current, liabilities into current and long-term, and equity, providing a comprehensive snapshot of financial health.

Closing Procedures

All temporary accounts like revenues, expenses, and drawings are closed to the Income Summary account, which is then closed to Owner’s Capital. Post-closing trial balance ensures ledger accuracy, with all balances correctly transferred and summarized, setting the stage for the new accounting period.

Conclusion

Randiddle Co.’s December 2012 accounting cycle demonstrates the importance of detailed record-keeping, precise inventory tracking using FIFO, and adherence to standard adjustments and closing procedures. By meticulously journalizing transactions, posting to subsidiary ledgers, adjusting entries, and preparing financial statements, the company ensures accurate reporting and readiness for year-end financial analysis. This systematic approach underscores the fundamental principles of accounting as a vital tool for business management and external reporting.

References

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