Cost of Goods Sold has a normal debit balance because it is an expense. Sales Discounts and Sales ReturnsĪnd Allowances are both contra revenue accounts so each has a normal debit balance.
To close Sales, it must be debited with a corresponding credit to the income summary. Sales is a revenue account so has a normal credit balance. When preparing closing entries for a merchandizer, the income statement accounts unique for merchandizers need to be considered-Sales, Sales Discounts, Sales Returns and Allowances, and Cost of Statement accounts are transferred to the Income Summary account, the Income Summary is closed to Retained Earnings, and Dividends are closed to Retained Earnings.
The closing procedure for merchandizing companies is the same as for service companies-all income The process of recording closing entries for service companies was illustrated in Chapter 3.
LO6 – Explain the closing process for a merchandizer.
