Annexes : (See Annexes Next Page)

INTRODUCTION
The Fashion Rack has a monthly accounting period. The firm's chart of accounts is shown in the Annexes. The journals
used to record transactions are the sales journal, purchases journal, cash receipts journal, cash payments journal, and
general journal. Postings are made from the journals to the accounts receivable ledger, accounts payable ledger, and
general ledger. The employees are paid at the end of the month. A computerized payroll service prepares all payroll
records and checks.
GENERAL INSTRUCTIONS
1. Open the general ledger accounts and enter the balances for October 1, 2016. Obtain the necessary figures
from the post closing trial balance prepared on September 30, 2016, which is shown in the Annexes
2. Open the subsidiary ledger accounts and enter the balances for October 1, 2016. Obtain the necessary figures
from the schedule of accounts payable and schedule of accounts receivable prepared on September 30,
2016, which appear in the Annexes
3. Analyze the transactions for October and record each transaction in the proper journal.
4. Post the individual entries that involve customer and creditor accounts from the journals to the subsidiary
ledgers on a daily basis. Post the individual entries that appear in the general journal and in the Other Accounts
sections of the cash receipts and cash payments journals to the general ledger on a daily basis.
5. Total, prove, and rule the special journals as of October 31, 2016.
6. Post the column totals from the special journals to the general ledger accounts.
7. Check the accuracy of the subsidiary ledgers by preparing a schedule of accounts receivable and a schedule
of accounts payable as of October 31, 2016. Compare the totals with the balances of the Accounts Receivable
account and the Accounts Payable account in the general ledger.
8. Check the accuracy of the general ledger by preparing a trial balance in the first two columns of a 10-column
worksheet. Make sure that the total debits and the total credits are equal.
9. Complete the Adjustments section of the worksheet. Use the following data. Identify each adjustment with the
appropriate letter.
a. During October, the firm had net credit sales of $9,810. From experience with similar businesses,
the previous accountant had estimated that 1.0 percent of the firm's net credit sales would result in
uncollectible accounts. Record an adjustment for the expected loss from uncollectible accounts for
the month of October.
b. On October 31, an inventory of the supplies showed that items costing $3,240 were on hand. Record
an adjustment for the supplies used in October.
c. On September 30, 2016, the firm purchased a six-month insurance policy for $8,400. Record an
adjustment for the expired insurance for October.
d. On October 1, the firm signed a three-month advertising contract for $4,800 with a local cable
television station and paid the full amount in advance. Record an adjustment for the expired
advertising for October.
e. On April 1, 2016, the firm purchased equipment for $83,000. The equipment was estimated to have
a useful life of five years and a salvage value of $12,500. Record an adjustment for depreciation on
the equipment for October.
f. Based on a physical count, ending merchandise inventory was determined to be $81,260.
10. Complete the Adjusted Trial Balance section of the worksheet.
11. Determine the net income or net loss for October and complete the worksheet.
12. Prepare a classified income statement for the month ended October 31, 2016. (The firm does not divide its
operating expenses into selling and administrative expenses.)
13. Prepare a statement of owner's equity for the month ended October 31, 2016.
14. Prepare a classified balance sheet as of October 31, 2016.
15. Journalize and post the adjusting entries using general journal page 17.
16. Prepare and post the closing entries using general journal page 18.
17. Prepare a post closing trial balance
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INTRODUCTION

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