Q. Example of work sheet for a merchandising company?

Lyons Company is a tiny sporting goods firm. The illustration for Lyons Company focuses on merchandise-related accounts. Therefore we do not show the fixed assets building, land and equipment. Except for the merchandise-related accounts the work sheet for a merchandising company is the similar as for a service company. Remind that utilize of a work sheet assists in the preparation of the adjusting and closing entries. The work sheet as well contains all the information essential for the preparation of the financial statements.

To further make simpler this illustration assume Lyons needs no adjusting entries at month end. The trial balance is as of the ledger accounts at 2010 December 31. The USD 7000 merchandise inventory in the trial balance is the beginning inventory and the sales related and sales accounts and the purchases-related and purchases accounts summarize the merchandising activity for December 2010.

Lyons carries any revenue accounts (Sales) as well as contra purchases accounts (Purchase Returns, Purchase Discounts and Allowances) in the Adjusted Trial Balance credit columns of the work sheet to the Income Statement credit column. It carry beginning inventory contra revenue accounts Sales Returns, Sales Discounts and Allowances) Purchases, Transportation-In and expense accounts (Selling Expenses or Administrative Expenses) in the Adjusted Trial Balance debit column to the Income Statement debit column. Suppose that ending inventory is USD 8000. Lyons enters this amount in the Income Statement credit column for the reason that it is deducted from cost of goods available for sale (beginning inventory plus net cost of purchases) in determining cost of goods sold. It as well enters the ending inventory in the Balance Sheet debit column to establish the proper balance in the Merchandise Inventory account. The beginnings as well as ending inventories are on the Income Statement because Lyons uses both to calculate cost of goods sold in the income statement. Net income of USD 5843 for the period balances the Income Statement columns. The firm embrace the net income to the Statement of Retained Earnings credit column. A retained earnings of USD 18843 balances the Statement of Retained Earnings columns. Lyons Company holds the retained earnings to the Balance Sheet credit column.