property on hand, for, if you will go over the transactions carefully, you will find that you bought 200 bushels of corn and 100 bushels of oats, and that you have sold the same quantities. The difference between the two sides of this account is due to the fact that you did not sell at the same prices at which you bought. Since purchases are entered on the debit side and sales on the credit, you will see that your merchandise cost $121 and sold for $133, therefore this difference of $12 is your gain. 32. Closing Merchandise Account. You closed your cash book by writing, Balanee, on the smaller side; but the difference between the two sides of your merchandise account shows a gain, therefore you will close this account by writing in red ink on the first vacant line on the smaller or debit side, Jan. 31, Gain, and the difference between the two sides, as shown in the following illustration. You may now rule and foot the account. Remember that the rulings should be on the same lines on the two sides of the account. When you closed the cash account, you carried the balance on hand below the rulings; but as this difference between the two sides of merchandise account does not represent property on hand, it should not be carried below the rulings. This gain belongs to the proprietor, and later you will learn what to do with such items. Compare your work with the merchandise account shown above. 33. Directions. You are to continue the use of the cash and merchandise accounts which you began in the first part of this exercise. Merchandise account has been closed, and the first entry on each side of this account should be on the line that immediately follows the closing rulings. As the cash account has not been closed, the first entry on each side of this account should be written in the first vacant space on the side where the entry belongs. In other words, when beginning the work of a new month you should leave no vacant spaces in any account that has not been closed, nor below the rulings in a closed account. Transactions. Feb. 1. Buy of George D. Robinson for cash, 300 bu. wheat @ 65. 2. Sell for cash 100 bu. wheat @ 68¢. 3. Buy of Edwin A. Gray for cash, 300 bu. corn @ 45%. 10. Sell for cash 50 bu. wheat @ 67¢. 15. Sell for cash 100 bu. corn @ 54¢. 17. Sell for cash 50 bu. corn @ 55¢. 22. Buy of H. B. Moulton for cash, 200 bu. oats @ 204. 24. Sell for cash 100 bu. wheat @ 70¢. 25. Sell for cash 200 bu. oats @ 22 ¢. 34. Directions. You may foot your accounts, but before doing so read carefully the directions in § 29. If the small pencil footings have not been erased, they should be included in any subsequent footings. If by mistake they have been erased, it will be necessary to add all the items in the column. In footing an account that has been previously closed, do not include in your footings any items that are above the closing rulings. You have nothing more to do with that portion of the account. You will find an illustration of this in the merchandise account on page 20. In other words, whenever an account is footed, you must include all the items in the account, except such as have been disposed of by closing the account. When you have made these footings, you should 35. The Inventory. -The above figures show that your merchandise has cost you $370, and that your sales amount to only $321. As the account stands, you have apparently lost the difference between these footings, or $49. This would be an actual loss if you had sold all of your grain; but, by comparing your purchases and sales, you will find that you have sold all of your oats, but have on hand 100 bushels of corn which cost 45%, and 50 bushels of wheat which cost 65, making a total inventory of $77.50. An Inventory is a statement of the property on hand. The value is usually estimated at the cost price of each article, unless there has been a material rise or fall in the market value. 36. Gain or Loss on Merchandise when there is an Inventory. Of course your profit or loss on merchandise is made on the goods sold. If you deduct from the cost of all your merchandise the value of what you have left on hand, the remainder will show the cost of the merchandise that has been sold. If the total sales are greater than this remainder, the difference will be a gain; but if the total sales are less, the difference will be a loss. A study of the following statement will help you to understand this: Total sales of merchandise, or credit footing, Cost of all merchandise bought, or debit footing, $370.00 Cost of all merchandise sold, Gain, $321.00 77.50 292.50 $28.50 37. Closing Merchandise Account when there is an Inventory. You must now close merchandise account so that it may show this gain of $28.50. In closing the cash book you entered the amount of cash on hand on the credit side, and now you must enter the value of the merchandise on hand on the same side of merchandise account, in red ink, as follows: Feb. 28, Inventory, $77.50. This entry will offset the cost of the unsold merchandise, which is included in the debit footing, and the difference between the two sides will be $28.50, the amount of the gain. You are now ready to make the closing entry. You may write on the smaller side, in red ink, Fɛb. 28, Gain, $28.50, and then rule and foot the account, as explained in § 16. You will learn later what to do with losses and gains, but the inventory represents goods on hand, therefore it must be carried below the rulings, just as you treated the similar entry in your cash book, placing the entry on the debit side in black ink and using the date of the next business day. The following 38. You may continue the work of this exercise, using the same accounts and entering the following transactions. You will notice that some of these transactions do not affect both cash and merchandise accounts. Transactions. March 1. You will make an additional cash investment of $250. 3. Buy of Henry Brown for cash, 400 bu. corn @ 44. 15. Buy of Geo. D. Robinson on account, 200 bu. corn @ 45. March 18. Buy of Edwin A. Gray for cash, 400 bu. wheat @ 65. 19. Sell to H. J. Perkins on account, 200 bu. corn @ 47 . 21. Pay Geo. D. Robinson for the grain bought of him the 15th inst. 22. Sell to James A. Manning for cash, 200 bu. oats @ 24. 25. Buy of Arthur Williams for cash, 200 bu. barley @ 50¢. 28. Sell to George Jones for cash, 50 bu. wheat @ 70 ¢. 30. Pay A. E. Burt the rent for three months, $25. Pay gas bill to date, $4.75. 39. Directions. After reading carefully the instructions in §§ 29 and 34, you may foot the accounts in your ledger. You should obtain the following 1781.00 1043.50 CREDIT FOOTINGS. 1492.00 671.00 40. Errors. If your results do not agree with the above figures, you should try to find the errors before consulting your teacher. If you are to master the subject of bookkeeping, you must learn how to find your mistakes. In looking for errors the following plan will help you: 1. Verify the footings of each account. 2. See that each transaction has been entered correctly. 3. Verify the computations for each transaction. 41. Directions. The manner of closing the cash account is similar to that of closing the cash book. You may enter the difference on the smaller or credit side in red ink, using for explanation, Balaneɛ. You may then rule and foot the account just as the merchandise account was ruled and footed, and carry the balance below the rulings on the opposite side in black ink. The entry below the rulings will have the date of the next business day. Compare this with the closing of the model cash book on page 5. You may next close the merchandise account, so that it may show the loss or gain for the month. The necessary steps should be taken in the following order: 1. Find the inventory, as explained in § 35. In finding this inventory the grain that you had on hand at the end of February must be included with that bought during March. |