SYSTEM OF ACCOUNTING FOR COOPERATIVE 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. 
