Question

Han Merchants has a periodic inventory system, uses the earnings approach to recognize revenue, and has the following accounts in its chart of accounts for its income statement.

For each account listed below:

(a)		Assuming Han Merchants prepares a multiple-step income statement, specify how the account should be classified:
(b)		Indicate if the closing of this account will require a debit or a credit.

				(a)		(b)
	Account			Classification		Closed with Debit or Credit
1		Freight out		Contra revenueOther expensesOther revenuesSalesOperating expensesCost of goods sold		DebitCredit
2		Sales discounts		Contra revenueSalesOther revenuesOperating expensesCost of goods soldOther expenses		DebitCredit
3		Purchase returns and allowances		Operating expensesSalesOther revenuesCost of goods soldContra revenueOther expenses		CreditDebit
4		Interest expense		Operating expensesOther expensesCost of goods soldOther revenuesContra revenueSales		DebitCredit
5		Merchandise inventory, ending		SalesOperating expensesOther revenuesContra revenueOther expensesCost of goods sold		DebitCredit
6		Advertising expense		Operating expensesOther revenuesOther expensesContra revenueSalesCost of goods sold		CreditDebit
7		Freight in		Contra revenueOther revenuesCost of goods soldOperating expensesSalesOther expenses		CreditDebit
8		Salaries expense		Operating expensesSalesContra revenueCost of goods soldOther revenuesOther expenses		DebitCredit
9		Utilities expense		Cost of goods soldContra revenueSalesOther revenuesOperating expensesOther expenses		CreditDebit
10		Insurance expense		Other expensesContra revenueOperating expensesCost of goods soldOther revenuesSales		CreditDebit
11		Sales returns and allowances		Other revenuesOperating expensesContra revenueOther expensesCost of goods soldSales		CreditDebit
12		Rent revenue		Contra revenueOperating expensesOther revenuesCost of goods soldSalesOther expenses		CreditDebit
13		Purchase discounts		Other revenuesSalesOperating expensesOther expensesContra revenueCost of goods sold		CreditDebit
14		Property tax expense		Other revenuesCost of goods soldSalesOther expensesContra revenueOperating expenses		CreditDebit
15		Sales		Contra revenueOperating expensesSalesOther revenuesCost of goods soldOther expenses		CreditDebit
16		Merchandise inventory, beginning		Operating expensesOther expensesContra revenueOther revenuesCost of goods soldSales		CreditDebit
17		Interest revenue		Operating expensesSalesOther revenuesCost of goods soldOther expensesContra revenue		CreditDebit
18		Depreciation expense		SalesCost of goods soldOther revenuesOperating expensesContra revenueOther expenses		CreditDebit
19		Purchases		Other expensesSalesContra revenueOperating expensesCost of goods soldOther revenues		DebitCredit

Answer 1

• Requirement asked

		(a)	(b)
	Account	Classification	Closed with Debit or Credit
1	Freight out	Operating expenses	Credit
2	Sales discounts	Contra revenue	Credit
3	Purchase returns and allowances	Cost of goods sold	Debit
4	Interest expense	Other expenses	Credit
5	Merchandise inventory, ending	Cost of goods sold	Debit
6	Advertising expense	Operating expenses	Credit
7	Freight in	Cost of goods sold	Credit
8	Salaries expense	Operating expenses	Credit
9	Utilities expense	Operating expenses	Credit
10	Insurance expense	Operating expenses	Credit
11	Sales returns and allowances	Contra revenue	Credit
12	Rent revenue	Other revenues	Debit
13	Purchase discounts	Cost of goods sold	Debit
14	Property tax expense	Operating expenses	Credit
15	Sales	Sales	Debit
16	Merchandise inventory, beginning	Cost of goods sold	Credit
17	Interest revenue	Other revenues	Debit
18	Depreciation expense	Operating expenses	Credit
19	Purchases	Cost of goods sold	Credit