Chapter 7
Inventory: Merchandising Transactions
195
Prepare a multistep income statement and classified multistep income statement
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A multistep income statement further categorizes revenue and expenses to show subtotals
such as gross profit and operating income. It also separately shows other revenue and expenses
that are not part of regular operations.
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A classified multistep income statement categorizes expenses as selling expenses and
administrative expenses.
Prepare closing entries for a merchandising business under the perpetual inventory system
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All revenue accounts are closed to the income summary account.
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All expense accounts and contra-revenue accounts are closed to the income summary account.
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The income summary account is closed to the owner’s capital account.
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If there are owner’s drawings, they are closed directly to the owner’s capital account.
Identify inventory controls
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All aspects of doing business should be governed by the appropriate plans, policies, procedures,
laws and regulations.
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All businesses should have plans that are formalized through general policies that lead to
specific procedures.
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All company assets must be physically protected.
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The concept that resources should be used economically and efficiently is especially applicable
to inventory.
