Accounting, Payroll & Pension Issues/Balance Sheet Not Working

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Question
Hello,

I just started keeping track of my own finances and I was just wondering if my journal entries are correct so far.  With the current Entries I'm not getting my balance sheet to be equal Assets = Liab + OE.

Journal Entries
1-Aug   bank    $50.90    
         Capital       $50.90

1-Aug   Merchandise Inventory    $23.90    
         bank      $23.90

1-Aug   Merchandise Inventory    $3.81    
         bank       $3.81

1-Aug   Merchandise Inventory    $11.96    
         bank       $11.96

1-Aug   Paypal    $7.23    
         Paypal Expense    $0.52    
         Sales (tshirt)       $7.75

1-Aug   Paypal    $14.36    
         Paypal Expense    $0.89    
         Sales (2 jeans)       $15.25

1-Aug   Paypal    $6.01    
         Paypal Expense    $0.49    
         Sales (brn shirt)       $6.50

1-Aug   Cash    $119.00    
         Capital       $119.00

1-Aug   Shipping Expense    $11.57    
         Paypal       $11.57

1-Aug   Personal Expense    $12.71    
         Paypal       $12.71

1-Aug   Shipping Expense    $2.00    
         Cash       $2.00

1-Aug   bank    $85.85    
         Capital       $85.85

1-Aug   Merchandise Inventory    $46.74    
         Accounts Payable       $46.74

1-Aug   Accounts Payable    $46.74    
         bank       $46.74

1-Aug   Personal Expense    $5.00    
         bank       $5.00

2-Aug   Personal Expense    $2.42    
         AP BillMeLater          $2.42

2-Aug   Personal Expense    $1.85    
         AP BillMeLater          $1.85

2-Aug   Merchandise Inventory    $10.26    
         bank       $10.26

--------------
Debits and Credits columns total to : $464.21
--------------
Account Totals:
===
Debits:
----
Bank: $40.08
Paypal: $3.32
Cash: $112.00
Paypal Expense: $1.90
Personal Expense: $21.98
Shipping Expense: $13.57
Merchandise Inventory: $96.67
====
Credits:
---
Capital: $255.75
Sales: $29.50
Accounts payable: $0.00
AP BillMeLater: $4.27
==================================
Balance Sheet:
Assets   
bank    $40.08
Paypal    $3.32
Cash    $112.00
Merchandise Inventory    $96.67
Total:    $252.07 (x)
--------------------
Liabilities & Owner Equity:   
Capital:    $255.75          
Accounts Payable    $-   
AP BillMeLater    $4.27    
Total:    $260.02 (x)

Error: $7.95
=============

If you could help I'd really appreciate it.  I haven't taken financial accounting in three years so this is also a personal refresher.

Thank you very much,

Dustin

Answer
So here's the problem. The error is equal to your net loss. The capital account balance, $255.75, should include your net income or (loss). Thus the ending capital balance should be $247.80 (255.75 - 7.95). You are missing an income statement which needs to be presented in addition to the balance sheet

Now, about the merchandise inventory account. At the end of the accounting period, an ending inventory needs to be taken so that you can expense the merchandise sold. You have your merchandise inventory as an asset which is okay as long as you determine how much was sold. If you sold all you bought so that the ending inventory is -0- then the merchandise inventory should be show as cost of goods sold, an expense, rather than an asset. In other words, inventory costs need to be reflected as an expense. When a shirt is sold, inventory needs to be reduced by the cost of that item.
If this is not clean, please ask follow-up questions.

For future assistance,  each entry should be labeled in a normal fashion with a "dr" " or "debit" and "cr" or "credit" next to each amount.

Let me know.

Accounting, Payroll & Pension Issues

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Arthur Naman

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General accounting and bookkeeping questions. Specific questions pertaining to: monthly bookkeeping, preparing financial reports; reconciling accounts.

I cannot answer questions pertaining to pension or retirement planning.

This is not a forum to have homework answered. Please do your own homework.

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30 years' experience doing tax and accounting work

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MPA from Univ. of Texas at Austin, MBA Golden Gate Univ, San Francisco CA

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