SYSTEM OF ACCOUNTING FOE COOPEKATIVE ASSOCIATIONS. 21 



account has been kept, the amount of the inventory is carried into 

 the accounts by the following entry: 



Inventory $1, 000. 00 



To Merchandise $1, 000. 00 



The balance then appearing on the Merchandise account — that is, 

 the total of sales and inventory at the end of the year, less the total 

 of purchases and inventory at the beginning of the year — represents 

 the gross profit on merchandise, or if there is a debit balance on the 

 account, it represents the gross loss on merchandise. If a profit has 

 been made on the Merchandise account, the balance is transferred to 

 the Profit and Loss account by a journal entry as follows: 



Merchandise $500. 00 



To Profit and Loss $500. 00 



If a loss was sustained the entry is : 



Profit and Loss $500. 00 



To Merchandise $500. 00 



After the entry is made which carries the balance on the Merchan- 

 dise account to the Profit and Loss account, the Merchandise account 

 will appear as follows : 



Merchandise Account. 



Purchases $5, 500. 00 



Profit and Loss 500. 00 



6, 000. 00 



Sales $5, 000. 00 



Inventory 1, 000. 00 



6, 000. 00 



After the books are closed, another journal entry is made charging 

 the Merchandise account for the next year with the amount of the 

 inventory and crediting that account. 



The above method is given for the reason that in some organiza- 

 tions the amount of merchandise handled is so small that, in the 

 opinion of the bookkeepers operating the books, the additional work 

 entailed in separating merchandise purchases and sales would hardly 

 be warranted. 



Instead of keeping a Merchandise account it would be much better 

 to keep two accounts: Merchandise Purchases and Merchandise 

 Sales. The amount of the inventory is allowed to stand in the 

 Inventory account throughout the year and another account — the 

 Trading Account — is raised at the time of closing the books. By 

 the use of these accounts, the Inventory account would show the 

 amount of goods on hand at the beginning of the fiscal year; the 

 Purchases account, the cost of goods purchased; and the Sales 

 account, the sales for the year. 



In closing the books, the Inventory account would be credited and 

 the Trading Account debited for the amount of the inventory carried 

 over from the previous period; the Purchases account credited and 

 the Trading Account debited for the total purchases; the Sales 

 account debited and the Trading Account credited for total sales. 



