Chapter 7 Reporting and Interpreting Cost of Goods Sold and Inventory.
CHAPTER TWENTY TWO COST OF GOODS SOLD AND STATEMENTS.
25
Transcript of CHAPTER TWENTY TWO COST OF GOODS SOLD AND STATEMENTS.
CHAPTER TWENTY TWO
COST OF GOODS SOLD AND
STATEMENTS
22-3
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
1. Complete a ten-column worksheet.
2. Prepare the income statement, statement of owner’s equity, and balance sheet from the worksheet.
COST OF GOODS SOLD AND STATEMENTS
Objectives:
22-4
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet
The following procedures are used to prepare the last two sections of the worksheet -- the Income Statement section and the Balance Sheet section.
22-5
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
The balances of the asset, liability, and owner’s equity accounts shown in the Adjusted Trial Balance section are recorded in the proper columns of the Balance Sheet section.
22-6
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
Both the debit and credit amounts shown on the Income Summary line are extended to the Debit and Credit columns in the Income Statement section.
22-7
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
The balances of the revenue, cost, and expense accounts shown in the Adjusted Trial Balance section are recorded in the proper columns of the Income Statement section.
22-8
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
The columns of the Income Statement section and the Balance Sheet section are totaled.
22-9
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
The total of the Debit column in the Income Statement section is subtracted from the total of the Credit column. The difference is the net income for the period.
22-10
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
The total of the Credit column in the Balance Sheet section is subtracted from the total of the Debit column. The difference is the same as the net income. This amount is entered below the total of the Credit column.
22-11
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Completing the Ten-Column Worksheet (continued)
The columns of the Income Statement section and the Balance Sheet section are totaled again. In each section, the debits and credits should be equal.
22-12
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Preparing the Financial Statements
The income statement for Maddalon Office Supply consists of five sections:
Operating Revenue
Cost of Goods Sold
The Gross Profit on Sales
The Operating Expenses
The Net Income
22-13
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Preparing the Financial Statements (continued)
The statement of owner’s equity includes the beginning capital plus any investments. To that figure, net income is added, withdrawals are subtracted, and the new total is computed.
22-14
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Preparing the Financial Statements (continued)
The balance sheet shows current assets, plant and equipment, current liabilities, long-term liabilities, and owner’s equity.
22-15
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Accounting Terminology
•Classified balance sheet
•Current assets
•Current liabilities
•Long-term liabilities
•Solvency
22-16
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Chapter Summary
•After the Adjusted Trial Balance section of the worksheet is completed, the balances for all accounts, except the Income Summary account, are transferred from the Adjusted Trial Balance section to the Income Statement and Balance Sheet sections of the worksheet.
22-17
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Chapter Summary (continued)
•The Income Summary debit and credit amounts are recorded in the Income Statement section of the worksheet. The net income is entered below the totals of the Debit column in the Income Statement section and the Credit column in the Balance Sheet section. Then, these sections are totaled again.
22-18
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Chapter Summary (continued)
•The completed worksheet provides the information needed to prepare the financial statements.
•The income statement for a merchandising business shows cost of goods sold and gross profit on sales as well as revenue, expenses, and net income or net loss.
22-19
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Chapter Summary (continued)
•Cost of goods sold:
Beginning inventory and net delivered cost of purchases are added to find the total merchandise available for sale.
The ending inventory is subtracted from the total merchandise available for sale to equal cost of goods sold.
22-20
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Chapter Summary (continued)
•The gross profit on sales is computed by subtracting the cost of goods sold from the net sales.
22-21
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Chapter Summary (continued)
•Assets are current or Plant and Equipment.
•Liabilities are current or long-term.
•The classified balance sheet shows assets and liabilities in groups.
22-22
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Investigating on the Internet
As a research assignment, access the Pepsi web site and report sources of information that might concern financial statements.
22-23
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
1. Gross profit on sales is computed by subtracting net sales from the cost of goods sold.
2. The completed worksheet provides the information needed to prepare the
financial statements. 3. The classified balance sheet shows only
current assets, current liabilities, and owner’s equity.
Topic QuizAnswer the following true/false questions:
TRUE
FALSE
FALSE
22-24
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
(Return to Topic Quiz)
1. Gross profit on sales is computed by subtracting net sales from the cost of goods sold.
FALSEGross profit is computed by subtracting the cost of goods sold from net sales.
22-25
McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights
Reserved.
(Return to Topic Quiz)
3. The classified balance sheet shows only current assets, current liabilities, and owner’s equity.
FALSEAll assets, liabilities, and owner’s equity accounts are grouped in the classified balance sheet.
