Question

Nix'it Company's ledger on July 31, its fiscal year-end, includes the following selected accounts that have normal balances (Nix'it uses the perpetual inventory system).

Merchandise inventory ...... $46,800 Sales returns and allowances..... $4,700
Retained earnings 133,300 Cost of goods sold..... 110,400
Dividends 7,000 Depreciation expense..... 12,100
Sales 163,600 Salaries expense.... 41,500
Sales discounts 4,700 Miscellaneous expenses..... 5,000
A physical count of its July 31 year-end inventory discloses that the cost of the merchandise inventory still available is $44,750.

Prepare journal entries to close the balances in temporary revenue and expense accounts Remember to consider the entry for shrinkage.

Answer 1

Answer:

First we must adjust COGS due to shrinkage in inventory:

July 31, 202x

Dr Cost of goods sold 2,050

    Cr Merchandise inventory 2,050

Now we close expense accounts:

July 31, 202x

Dr Income summary 171,050

    Cr Cost of goods sold 112,450

    Cr Depreciation expense 12,100

    Cr Salaries expense 41,500

    Cr Miscellaneous expenses 5,000

Now we must determine net sales revenue:

July 31, 202x

Dr Sales revenue 9,400

    Cr Sales returns and allowances 4,700

    Cr Sales discounts 4,700

We then close sales revenue:

July 31, 202x

Dr Sales revenue 154,200

    Cr Income summary 154,200

In this case, we must determine the loss which will decrease retained earnings:

July 31, 202x

Dr Retained earnings 16,850

    Cr Income summary 16,850

Finally, we must also close dividends:

July 31, 202x

Dr Retained earnings 7,000

    Cr Dividends 7,000