Debit columns and General Journal?

Question

On a worksheet, the debit column of the income statement totals 550,356 and the credit column totals 734,225. This represents:

a. a net income for the business

b. a net loss for the business

c. erors in the worksheet

d. other expenses.

At the end of the accounting period, the correct entry in the general journal to adjust for beginning inventory is to:

a. debit purchases and credit sales

b. debit income summary and credit merchandise inventory

c. debit merchandise inventory and credit income summary

d. debit purchases and credit merchandise inventory

At the end of the accounting period , the correct entry in the general journal to adjust for the ending inventory is to:

a. debit purchases and credit sales

b. debit income summary and credit merchandise inventory

c. debit merchandise inventory and credit income summary

d. debit purchases and credit merchandise inventory

Can someone please help me with these I am really stumped on these 3 questions

Answer 1

On a worksheet, the debit column of the income statement totals 550,356 and the credit column totals 734,225. This represents:

a. a net income for the business

On your income statement, you have revenue accounts and expense accounts.  Revenue accounts normally have a credit balance.  Expense accounts normally have a debit balance.  So if your revenues, which are in your credit column, are greater than your expenses n the debit column, you have net income for the period.

At the end of the accounting period, the correct entry in the general journal to adjust for beginning inventory is to:

*** At the end of an accounting period, the BEGINNING inventory for the month should already be correct because it should have been adjusted at the closing of the prior month.  

Example:  You sell the famous widget.  On December 31, you do an inventory and count 600 widgets.  You know you paid $1 each for them.  So on your books for December 31, you will have an asset account on your balance sheet, called "Inventory" and it will have a debit balance of $600.

When you close your December books and open your January books, that $600 in Inventory carries forward.  So on January 1, you had $600 in inventory, and this is what your books already show simply from doing your December closing.

Your next adjustment of your inventory account will come at the end of January, when you will adjust inventory again to reflect ONLY JANUARY activity.  At the end of the month, you adjust inventory for the END of that month, not for the beginning of the month.  You already did the beginning.

Do these questions go along with actual entries that you had to write up and then prepare statements?

At the end of the accounting period , the correct entry in the general journal to adjust for the ending inventory is to:

This question also - are there actual entries related to the question?  Because which entry you write will be determined by your numbers, and whether your inventory has increased, decreased, or stayed the same for the month.

Going back to above:  Dec. 31, you have 600 widgets and you paid $1 each, so Dec. 31 balance sheet shows $600 debit balance in asset "Inventory."

On January 10, you receive invoice for 2000 more widgets that just arrived, again at $1 each.  This entry is a debit to Purchases account (on income statement) and credit to Accounts Payable liability.  You pay the invoice on Jan. 20, which debits Accounts Payable and credits Cash.

Purchases  debit $2,000

. . . . Accounts Payable . . . . credit ($2,000)

Accounts Payable  debit $2,000

. . . . Cash . . . . . . . . . . . . . .credit ($2,000)

On Jan. 25, you sell 945 widgets for $3.50 each.  You will debit Accounts Receivable for $3,307.50 and credit Sales for $3,307.50.

On January 31, you count your widgets.  You started with 600, bought 2000, and sold 945.  You should have 1,655 widgets left.  Now you adjust your Purchases, Inventory, and Cost of Goods accounts like this:

Inventory. . . . . . . . . . . . .debit $1,055

Cost of Goods Sold . . . . .debit . $945

. . . . . . Purchases . . . . . . . . . . .. . . . credit (2,000)

Now your Purchases account is back to zero.  Your cost of goods is $945, which is what those 945 widgets cost you.  And your inventory account show the $600 you started with plus the $1055 left from that new batch, which totals the $1,655 that your inventory count said you would have.

In my example, we DEBITED Inventory and CREDITED purchases at the end of the month - the exact opposite of answer D - because we bought more inventory during the month than we sold.  Our inventory increased.

Now say we only bought 400 more widgets instead of 2000.  

Debit Purchases for 400

Credit Accounts Payable for 400

When paid, Debit Accounts Payable for 400

Credit Cash for 400

We still sell 945, so we still debit Accounts Receivable and credit Sales for $3,307.50.

At the end of the month, we only have 55 widgets left.  Our inventory has gone DOWN.  So this time,

Cost of Goods Sold . . . . .debit . $945

. . . . . . Inventory.  . . . . . . . . . . .. . . . credit ($545)

. . . . . . Purchases . . . . . . . . . . .. . . . credit ($400)

Purchases gets credited for the $400 we spent, to get it set back to zero.  We still sold 945 at $1 each, so COGS is still a debit of $945.  But our original 600 widgets increased by 400 and then decreased by 945, leaving us with 55.  The difference between the 600 we started with and the 55 we ended with is 545 widgets, at $1 each.  So inventory gets a credit of $545 to decrease the value to match inventory on hand.

I hope seeing some actual numbers helps you understand why I'm asking if the questions relate to a problem that had specific numbers or journal entries, because you can't just issue a blanket statement that "inventory is ALWAYS credited at the end of a month" because it isn't, not always.

In the sources below, I've put some links to some online