Data for the trial balance are obtained from the ledger balances of Highpoint Electronic at December 31. The amount shown for Merchandise Inventory, $36,000, is the beginning inventory.
Adjustments Columns
A merchandising company generally have the same types of adjustments as a service company. As you see in the work sheet, adjustments (a), (b), and (c) are for insurance, depreciation, and salaries. These adjustments were also required for Pioneer Advertising Agency, as illustrated in Chapters 3 and 4.
After all adjustment data are entered on the work sheet, the equality of the adjustment column totals is established. The balances in all accounts are then extended to the adjusted trial balance columns.2
Adjusted Trial Balance
The adjusted trial balance shows the balance of all accounts after adjustment at the end of the accounting period. Note that beginning inventory was not adjusted. Therefore it is extended to the adjusted trial balance in the amount of $36,000.
Income Statement Columns
The accounts and balances that affect the income statement are transferred from the adjusted trial balance columns to the income statement columns. For High- point Electronic, Sales of $480,000 is shown in the credit column whereas the contra revenue accounts, Sales Returns and Allowances of $12,000 and Sales Discounts of $8,000, are shown in the debit column. Thus, the difference of $460,000 is the net sales shown on the income statement. Similarly, Purchases of $325,000 and Freight-in of $12,200 are extended to the debit column. The contra purchase accounts, Purchase Returns and Allowances of $10,400 and Purchase Discounts of $6,800, are extended to the credit columns.
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