Preparing the Balance Sheet for Merchandising Business
Balance Sheet for Merchandising Business
According to Investopedia (n.d.), a balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. The balance sheet adheres to the following formula:Assets = Liabilities + Shareholders' Equity.
Because merchandising companies and service companies sell different things, they also have some balance sheet differences. The balance sheet lists all of the company's assets, liabilities and equity. Both types of company will still maintain these sections. However, there is one main difference in the accounts listed. This difference is found in the asset section. Merchandising companies will have an asset for inventory, whereas service companies do not. This is listed as a current asset. Other differences can include the types of accounts payable a merchandising company has. For example, a merchandising company may have a standing account payable to a wholesale company for the purchase of its products. A service company may have a service revenue receivable account for expected payment for services provided.
Even though merchandising companies and service companies have one main difference on their respective balance sheets, overall the balance sheets are nearly the same. The balance sheet is still divided into "assets" and "liabilities and equity." In the assets section, similar items remain, such as buildings, accumulated depreciation, vehicles and prepaid insurance. In the liabilities and equity section, many of the usual balance sheet items can be found on the balance sheets of both types of company. These can include notes payable, accounts payable and retained earnings (Chron, n.d.).
KEY CONCEPTS TO REMEMBER WHEN PREPARING THE BALANCE SHEET FOR MERCHANDISING BUSINESS:
Assets - A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit (Accounting Tools, n.d.).
Current Assets- Represent the value of all assets that can reasonably expect to be converted into cash within one year (includes Cash, Accounts Receivable, Store Supplies Unused, etc) (Accounting Tools, n.d.).
Total Current Assets - Total value of all the Current Assets combined.
Properties & Equipment - A type of Non-Current Asset. Properties and equipment of the business that is needed to maintain operation (includes Furniture & Fixtures, Office Equipment, etc) (Accounting Tools, n.d.).
Total Properties & Equipment - Total value of all the Properties and Equipment combined.
Total Assets - The sum of Total Current Assets and Total Non-current Assets/Total Properties and Equipment.
Liabilities & Owner's Equity -Liabilities are obligations of the company to transfer something of value like assets to another party (Accounting Tools, n.d.). Owner's Equity is the owner's value in an asset or group of assets (Accounting Tools, n.d.).
Current Liabilities - Business's debts or obligations that are due within one year (includes Accounts Payable, Notes Payable, etc).
Total Current Liabilities - Total value of all the Current Liabilities combined.
Long-term Liabilities - Business's debts or obligations that are due after 1 year or more (includes Loan Payable, Mortgage Payable, etc.). Also called Non-Current Liabilities (Accounting Tools, n.d.).
Total Non-Current Liabilities - Total value of all the Non-Current Liabilities combined.
Total Liabilities - Total value of all the Liabilities combined. The sum of the Total Current Liabilities and Total Non-Current Liabilities.
Owner's Equity - The owner's value in an asset or group of assets (includes Owner, Capital; Owner, Drawing; etc.) (Accounting Tools, n.d.).
Total Liabilities and Owner's Equity - The sum of Total Liabilities and Owner's Equity.
PROCEDURES TO FOLLOW WHEN PREPARING THE BALANCE SHEET FOR MERCHANDISING BUSINESS:
(NOTE: 1) A 4-COLUMN WORKSHEET IS TO BE USED WHEN PREPARING THE BALANCE SHEET FOR INCOME STATEMENT. 2) PUT HYPHEN AT THE THE END OF EVERY VALUE OF THE ACCOUNTS IF THERE WILL BE NO CENTAVO TO BE RECORDED. 3)ALL THE VALUES WILL BE WRITTEN UNDER THE 4TH COLUMN [EXCEPT THE VALUES OF THE ACCOUNTS UNDER THE HEADING OF OWNER'S EQUITY BECAUSE THOSE WILL BE WRITTEN UNDER THE 3RD COLUMN]. 4) ALL KINDS OF ACCOUNTS WILL BE INDENTED [HEADINGS ARE EXCLUDED])
To begin, start at the heading wherein you will write the name of the business at the most top in all CAPITAL letters then write "Balance Sheet" under it and then write "As of then the month then the last day of the month followed by a comma then the year" below the word "Balance Sheet." Now for the content proper. First step, write the word "ASSETS" at the top-center to serve as the heading for the assets that you will record. Second step, write the word "Current Assets" to serve as heading for the current assets to be recorded. Third step, record all the current assets that the business have and remember that the value of the first current asset account will acquire a peso sign and below the value of the last current assets account recorded is a single rule/line to signify the end of the current assets accounts to be recorded. Fourth step, add the value of all the recorded current assets account then the value of the sum will have a single line/rule below it and a peso sign and it will be recorded as Total Current Assets. Fifth step, since we are done with the current assets, write "Properties and Equipment" to serve as heading for the properties and equipment to be recorded. Sixth step, record all the properties and equipment that the business have and remember that the value of the first properties and equipment account will acquire a peso sign and below the value of the last current assets account recorded is a single rule/line to signify the end of the properties and equipment accounts to be recorded. Seventh step, add the value of all the recorded properties and equipment accounts then the value of the sum will have a single line/rule below it and a peso sign and it will be recorded as Total Properties and Equipment. Eighth step, add the value of the Total Current Assets and Total Properties and Equipment and record the sum with a peso sign and a double rule/line below it then it will be recorded as Total Assets. Ninth step, we are already on Liabilities & Owner's Equity so write the word "Liabilities & Owner's Equity" at the top-center to serve as the heading for the liabilities and owner's equity to be recorded. Tenth step, write the word "Current Liabilities" to serve as heading for the current liabilities to be recorded. Eleventh step, record all the current liabilities that the business have and remember that the value of the first current liabilities account will acquire a peso sign and below the value of the last current liabilities account recorded is a single rule/line to signify the end of the current liabilities accounts to be recorded. Twelfth step, add the value of all the recorded current liabilities account then the value of the sum will have a single line/rule below it and a peso sign and it will be recorded as Total Current Liabilities. Thirteenth step, since we are done with the current liabilities, write "Long-Term Liabilities/Non-Current Liabilities" to serve as heading for the long-term liabilities/non-current liabilities to be recorded. Fourteenth step, record all the long-term/non-current liabilities that the business have and remember that the value of the first long-term/non-current liabilities account will acquire a peso sign and below the value of the last long-term/non-current liabilities account recorded is a single rule/line to signify the end of the long-term/non-current liabilities accounts to be recorded. Fifteenth step, add the value of all the recorded long-term/non-current liabilities accounts then the value of the sum will have a single line/rule below it and a peso sign and it will be recorded as Total Long-Term/Non-Current Liabilities. Sixteenth step, add the value of the Total Current Liabilities and Total Long-Term/Non-Current Liabilities and record the sum with a peso sign and a singe rule/line below it then it will be recorded as Total Liabilities. Seventeenth step, write the word "Owner's Equity" to serve as the heading for all the owner's equity accounts to be recorded. Eighteenth step, under "Owner's Equity" is "Owner/Name of the business/Name of the owner of the business, Capital" and the value will acquire a peso sign since its the first value recorded from the column. Nineteenth step, write "Less:Owner/Name of the business/Name of the owner of the business, Drawing" and its value should have a single line/rule below it. Twentieth step, deduct the Owner, Drawing from the Owner, Capital and you will get the Net Capital and remember that its value should have a peso sign beside it. Twenty-first step, write "Less:Net Loss/Add:Net Income" below the account title "Net Capital" then its value should have a single rule/line below it . Twenty-second step, add/subtract the values of the Net Capital and Net Income/Net Loss then put the sum or difference beside the value of the Net Income/Net Loss then put a single line/rule below the value. Twenty-third and last step, add the total values of the Total Liabilities and Owner's Equity and the value of the sum should have a peso sign beside it and a double line/rule below it then it shall be recorded as Total Liabilities and Owner's Equity. Now, you are done with your balance sheet for merchandising business.
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SCREENSHOTS OF THE SITES I USED FOR SOURCES:
REFERENCES:
http://www.investopedia.com/terms/b/balancesheet.asp
http://smallbusiness.chron.com/difference-between-balance-sheet-merchandising-company-service-company-14649.html
http://www.accountingtools.com/balance-sheet
https://e.edim.co/27166275/Y5fX5RKQ9F84ghKG.pdf?response-content-disposition=filename%3D%22grade_10_income_statement_and_balance_sheet_preparation.pdf%22%3B%20filename%2A%3DUTF-8%27%27grade%252010%2520income%2520statement%2520and%2520balance%2520sheet%2520preparation.pdf&Expires=1489361704&Signature=COG5RZVVwpFnhUnQ3aDaMKNJjx-G3C3v2RrRft9sr8H16gRUPhSI3Bc0Jr5mouuP2uZVJXfZHytO-eB-d9U89Qjj8ZjmqsZWndSG28OIMypZy0khZBh0tJEB89fec0hynozWCxcdlQsK-Ly9d3-1-Hkyp1Spbu9v5T2g1xntj2~lsnvi99G4KUNUOeH0USdp2-LCjzyK~P~EeJq3Gm5zLRYyTR6tDZYd26b9UiCUmK83D8XAyrTXnYkvYuo9dbu~CkCB8rHn9uxvIKB2oGV27pLx9LVxWrEcl3KrghqU9FiWeVM~sIBgbf5MMjm7d20RtYnHvbgQ-gsSeFyYrIgwgw__&Key-Pair-Id=APKAJMSU6JYPN6FG5PBQ
These are the websites that helped me to define what a Balance Sheet is. Also, it helped me to identify the key concepts, principles and procedures to follow in preparing a Balance Sheet for Merchandising Business.
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Learning Reflections
Preparing the balance sheet for merchandising business was way more easier than preparing the income statement for merchandising business. I have fully understand the key concepts, principles and procedures that are involved in preparing the balance sheet for merchandising business because I was listening to the MOST HANDSOME TEACHER IN THE WHOLE PLANET a.k.a Sir Randy Palestina the whole time he was discussing those things inside the classroom. One more thing, after reflecting for some time, I realized that preparing the balance sheet for merchandising business was very easy for me to do because I enjoy doing it although I don't know why I enjoy it.
Summary
In short, I just realized that preparing the balance sheet for merchandising business was easy for me because I was listening to the discussions of the lessons and maybe because I enjoy doing it. Now, I would like to tell all aspiring bookkeepers to listen to the discussions of lessons inside the classroom because it will really help you to fully understand every topic in bookkeeping. Also, I would also like to tell them to continue in studying bookkeeping if that is what makes them happy. ALWAYS REMEMBER, NEVER LET SOMEONE DECIDE YOUR FUTURE! INSTEAD, DO THE THINGS THAT YOU LOVE AND THE THINGS THAT MAKES YOU HAPPY AND THE REST WILL FOLLOW!