# Accounting Cycle for a Merchandising Company

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This is a comprehensive example of the accounting cycle. Assume a merchandise company experienced the following events during the first month. Identify the accounts that are debited and credited. Journalize, post, and create a trial balance, make adjusting entries, prepare an adjusted trial balance, complete the financial statements, journalize and post closing entries, and create a post-closing trial balance.

### Step 1 - Analyze and Journalize

Analyze and Journalize each of the following Transactions using a General Journal Page 1
(journal will be provided by the teacher or you can download from the Advanced Accounting LiveBinder - Accounting documents tab.)

### 01-1 Issued \$500,000 of capital stock to owners.

Debit: Cash
Credit: Capital Stock

### 01-2 Obtained a loan for \$200,000 from the bank.

Debit: Cash
Credit: Bank Loan Payable

Debit: Equipment
Credit: Cash

### 01-4 Merchandise Inventory was purchased for \$250,000 on account

Debit: Inventory
Credit: Accounts Payable

### 01-15 Employees who earned \$5,000 this period were paid.

Debit: Salary Expense
Credit: Cash

### 01-16 A utility bill for \$1,500 was received, but not paid.

Debit: Utility Expense - \$1,500
Credit: Utilities Payable - \$1,500

### 01-17 Merchandising inventory costing \$100,000 was sold to customers for \$175,000 on account.

Debit: Accounts Receivable - \$175,000
Credit: Sales - \$175,000
Debit: Cost of Goods Sold - \$100,000
Credit: Inventory - \$100,000

### 01-26 Customers paid \$80,000 on their accounts

Debit: Cash - \$80,000
Credit: Accounts Receivable - \$80,000

### 01-29 Dividends of \$5,000 were paid

Debit: Retained Earnings - \$5,000
Credit: Cash - \$5,000

### Step 2 - Post General Journal Entries to the General Ledger and/or subsidiary ledgers

Stop and Post Journal Entries to the Individual Ledger Accounts using the General Ledger sheets provided by the teacher or you can download from the Advanced Accounting LiveBinder - Accounting documents tab.

### Step 3 - Prepare a Trial Balance

Prepare a Trial Balance
(Trial Balance sheets will be provided by the teacher or you can download from the Advanced Accounting LiveBinder - Accounting documents tab.)

### Step 4 - Enter Adjusting Entries & then post to the ledger

Enter the following adjustments for depreciation and accrued interest.

### 01-31 Depreciation on the equipment is estimated at \$4,000.

Debit: Depreciation Expense - \$4,000
Credit: Accumulated Depreciation - \$4,000

### 01-31 Accrued interest on the loan is \$1,875.

Debit: Interest Expense - \$1,875
Credit: Interest Payable - \$1,875

### Step 5 - Prepare an adjusted trial balance

Use the forms provided to prepare an adjusted trial balance.

### Step 6 - Prepare the financial statements using the information in the adjusted trial balance or the Ledger

Prepare an
- Income Statement
- Statement of Retained Earnings
- Balance Sheet

### Step 7 - Closing Entries

Record the closing entries in the general journal and post to the ledgers.

### Step 8 - Prepare a Post-Closing Trial Balance

Prepare a Post-Closing Trial Balance

Example: