Accounting in Merchandising Companies

5.7. Journal entries and T-accounts for the first illustration of accounting for inventory

Let us prepare the general journal and post all transactions to T-accounts:

Illustration 7: General journal for illustration #1

Event No	Account titles	Debit	Credit
1	Cash	9,000
	Merchandise Inventory	3,000
	Contributed Capital		12,000
2	Merchandise Inventory	4,000
	Cash		4,000
3	Merchandise Inventory (Transportation-in)	200
	Cash		200
4a	Cash	5,500
	Sales Revenue		5,500
4b	Cost of Goods Sold	2,000
	Merchandise Inventory		2,000
5	Transportation-out	300
	Cash		300
6	Selling Expenses	400
	Cash		400
Closing	Sales Revenue	5,500
entry	Cost of Goods Sold		2,000
	Transportation-out		300
	Selling Expense		400
	Retained Earnings		2,800

Note the last entry that is called a closing journal entry. We zeroed the nominal accounts (revenue and expense accounts) for use in the next accounting period. The closing entry is combined because we include both revenue and expense accounts into it.

Illustration 8: Summary of T-accounts for illustration #1

Assets		=	Liabilities	+	Equity
Cash					Contributed Capital
(1) 9,000 (4a) 5,500	(2) 4,000 (3) 200 (5) 300 (6) 400		0			(1) 12,000
						Bal. 12,000


Bal. 9,600					Retained Earnings
						(cl.) 2,800
						Bal. 2,800
Merchandise Inventory
(1) 3,000 (2) 4,000 (3) 200	(4b) 2,000				Sales Revenue
					(cl.) 5,500	(4a) 5,500
						Bal. 0
Bal. 5,200
					Cost of Goods Sold
					(4b) 2,000	(cl.) 2,000
					Bal. 0

					Transportation-out
					(5) 300	(cl.) 300
					Bal. 0

					Selling Expense
					(6) 400	(cl.) 400
					Bal. 0
			Totals
Assets 14,800		=	Liabilities 0	+	Equity 14,800

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