Chapter 5, Problem 5.9BP

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Journal entry: Journal is the book of original entry whereby all the financial transactions are recorded in chronological order. Under this method each transaction has two sides, debit side and credit side. Total amount of debit side must be equal to the total amount of credit side. In addition, it is the primary books of accounts for any entity to record the daily transactions and processed further till the presentation of the financial statements.

The following are the rules of debit and credit:

1. 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and stockholders’ equity accounts are debited.
2. 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.

To Record: The journal entries in books of Company W using periodic inventory system during November.

(b)

To determine

T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where, they are recorded and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.

To Post: The above transactions to T-accounts of Company W.

(c)

To determine

Trial balance: This is a statement prepared to show all the year-end account balances of a business. The balances are shown in separate columns as debit and credit. Trial balance is made to check whether books of accounts of the business are arithmetically accurate.

To determine: Prepare trial balance for Company W on  November 30, 2014.

(d)

To determine

The income statement: This is a financial statement that shows the net income earned, or net loss suffered by a company, through reporting all the revenues earned, and expenses incurred, by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses.

To Prepare: The income statement through gross profit for the month ended November 30, 2014assuming the merchandise inventory on hand at November 30 is $5,196.