are made out semi-annually, in not a few, quarterly, and in a few, monthly. In practice work for the learner, they are frequently made out monthly to give valuable practice in classifying accounts and in ascertaining the worth of the business. Preparation for the Statements. Before statements can be prepared the following steps must be taken: 1. A trial balance must be made. 2. Inventories of anything of value on hand must be taken. The Six-Column Statement. Different forms of statements are used by bookkeepers and accountants. The easiest one to understand is the Six-Column Statement. It exhibits in parallel columns the debits and credits of the trial balance, the losses and the profits, and the assets and the liabilities. Using as an inventory of the goods on hand, $809.25, a Six-Column Statement of the trial balance of the Model Ledger is shown on page 48. The proprietor's net credit is found by subtracting his withdrawals from his investment. The net worth of the business is found in two ways: 1. By adding the net profit to the net credit or by subtracting the net loss from the net credit. 2. By subtracting the liabilities from the assets. The proof of the statement, then, is whether the net worth found by the two methods is the same. The net worth is placed in the liability column, at the last, to show that the statement proves and to show that it is a capital liability, a liability to the proprietor for what he left in the business plus the net profit of the business. Most business houses prefer to show the results of the business in two statements, a Statement of Profit and Loss and a Statement of Assets and Liabilities. The statements illustrated on pages 50 and 51 are made from the trial balance of the Model Ledger and the inventory of goods on hand, $809.25. By comparing these statements with those of the Six-Column Statement, it will be found that the results are the same. These statements show how the results are obtained in greater detail than the Six-Column Statement, and for that reason they are preferred by most bookkeepers and business men. You will use the Six-Column Statement at first to help you understand the classification, then you will use the Statement of Profit and Loss and the Statement of Assets and Liabilities. The first column of these statements should be used when there is more than one item under any of the headings. In this statement, Merchandise is the only account that shows a profit, and Expense the only account that shows a loss. For that reason, the last column only is used in this Profit and Loss Statement. Exercise 12. From the following Trial Balance and Inventory, make a Six-Column Statement: Statement of Profit and Loss for the month ending Jan. 31,19 Set I. Make a Six-Column Statement for Set I, and keep it for The inventory of merchandise is as follows: future use. 25 bbl. Apples at $3.75.... 75 bu. Potatoes at 65¢. $ 93.75 48.75 $142.50 Statement of Assets and Liabilities, Copy the inventory after the journal entries like the following: Inventories. Jan. 31,19 Merchandise: 11645 447.15 150180 Do not copy the Six-Column Statement. Set II. Make a Six-Column Statement for Set II, and keep it for further use. The inventory of merchandise is as follows: 60 tons Soft Coal at $2.80. 20 tons Coke at $5.35... Copy the inventory after the journal entries. . $168 107 $275 CHAPTER VIII CLOSING THE LEDGER The statements explained in the last chapter were made from a trial balance of the ledger and the inventory of goods on hand. They are usually kept for reference in a statement book. The ledger must then be closed to show the net results of the business in permanent form. In closing the ledger, all nominal accounts and the nominal element of all mixed accounts must be transferred to a Profit and Loss account. This Profit and Loss account corresponds to the Profit and Loss columns of the Six-Column Statement or to the Statement of Profit and Loss. The net result of that account must be the same as the net profit of the statement. All real accounts must be closed by Balance to show the same results as those found in the Asset and Liability columns of the SixColumn Statement or in the Statement of Assets and Liabilities. Steps Necessary. Before the ledger is closed the following steps should be taken: Take a trial balance. Ascertain the inventories. Make a Six-Column Statement or a Statement of Profit and 4. It is desirable, but not absolutely necessary, to make a Statement of Assets and Liabilities before closing the ledger. The Model Ledger will now be closed, using the statements already made as guides. To Close the Merchandise Account: 1. Enter the Inventory, $809.25, in red ink on the credit side. 2. Find the sum of the credit side and the inventory, and place the amount in pencil. 3. Subtract the sum of the debit side from the sum of the credit side and the inventory. 4. Enter the difference, $130.75, on the debit side as Profit and Loss. 5. Rule a single line underneath the last item on the credit side and on the same line on the debit side. Place the totals below in black ink and rule double lines on the first line below the single line. The single lines should be ruled across the money columns only, thus, i The double lines should be ruled across all but the explanatory columns, thus, In closing this account, $809.25 has been added to the credit side and $130.75 to the debit side. The ledger is not now in balance. To put it in balance, $809.25 must be added to the debit side of the ledger, and $130.75 to the credit side, as explained below. 6. Bring the inventory down in black ink on the debit side, dating it February 1. 7. Transfer the Profit and Loss item to the credit side of the Profit and Loss account, writing January 31, Merchandise, $130.75. The ledger is now in balance again. |