Course Code: ACC 102

Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Lesson title: Illustrating the operating cycle of a merchandising Materials:

Lesson Objectives: Module #10
1. Understand the basic concepts of merchandising
transactions and check journal entries pertaining to the References:
operating cycle of the merchandising business. Fundamentals of Financial
2. Identify the common source documents used in the Accounting and Reporting by
merchandising business. Win Ballada

Productivity Tip:
Don’t stress yourself too much. When your body is experiencing a stress response, you’re often not
thinking as clearly as you could be. A quick way to calm down is to practice breathing exercises.
These can be done virtually anywhere to relieve stress in minutes, and are especially effective for
reducing anxiety before or even during tests, as well as during other times when stress feels
overwhelming.

A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)

The merchandising business purchases inventory, sells the

inventory and uses cash to purchase more inventory. Good
examples of merchandising businesses include retail clothing,
grocery stores and bookstores. Some businesses produce the
goods they sell, while other merchandise businesses buy and
sell goods they've purchased wholesale. For cash sales, the
cycle is from cash to inventory and back to cash. For sales on
account, the cycle is from cash to inventory and back to cash.

Example: Purchases 10,000

Cash 10,000
To record purchases of merchandise for cash

Accounts Receivable 15,000

Sales 15,000
To record sale of merchandise on credit

Cash 15,000
Accounts Receivable 15,000
To record collection of account
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 Course Code: ACC 102
Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

2) Activity 1: What I Know Chart, part 1 (3 mins)

Try answering the questions below by writing your ideas under the What I Know column. You may use
key words or phrases that you think are related to the questions. Answer the What I learned section
after reading the Concept notes

What I Know Questions: What I Learned

What is Merchandising?

What is a Purchase Order?

What is a check?

B. MAIN LESSON
1) Activity 2: Pre-Printed Content Notes (13 mins)

Merchandising businesses uses the following forms and source documents to help identify the transactions
that should be recorded in the books.
1. Sales Invoice is prepared by the seller of goods and sent to the buyer. It contains the name and
address of the buyer, the date of sale and the quantity, description and price about the goods sold.
It also specifies the amount of sales and the transportation and payment terms. The cash sales
invoice is used for cash sales while the credit sales invoice is used for sales on account.
2. Official receipt evidences the receipt of cash by the seller or the authorized representative.
3. Credit memorandum is a form used by the seller to notify the buyer that his account is being
decreased due to sales returns or errors or other factors requiring adjustments.
4. Delivery receipt is a document that is typically signed by the receiver of a shipment to indicate that
they have in fact received the items being shipped and have taken possession of.
5. Bill of lading is a document issued by the carrier (shipping company) that specifies contractual
conditions and terms of delivery such as freight terms, time, place, and the person named to
receive the goods. If the carrier is an airline company, the form is called Airway Bill.
6. Check is a written order to a bank by a depositor to pay the amount specified in the check from his
checking account to the person named in the check.
7. Receiving report is a document containing information about goods received from a vendor which
includes quantities and description of goods received.
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 Course Code: ACC 102
Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

8. Debit memorandum is a notification from a buyer to a seller that tells the seller that a debit was
made in the seller’s account on the buyer’s books. It is a way for a buyer to inform the seller that it
wants a refund or discount on its purchase.
9. Accounts payable voucher is used to record liabilities to individuals or companies supported by
the supplier’s invoice and the company’s receiving report and purchase order.
10. Check voucher is a kind of document that explains both the nature of payment and details of the
check.

Other business documents that are being used in the operating cycle but are not recorded in the
accounting books are the following:
1. Statement of account is a formal notice to the debtor detailing the accounts already due.
2. Deposit slips are printed bank forms with depositor’s name, account number and space for details
of the deposit.
3. Purchase requisition is a written request to the purchaser of an entity from an employee or user
department of the same entity that goods need to be purchased.
4. Purchase order is an authorization made by the buyer to the seller to deliver the merchandise as
detailed in the form.

2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)

Directions: Prepare journal entries for the following transactions.

January 1 Cash sales, P230,000.

4 Sales on account, P450,000.
10 Purchased merchandise for cash, P150,000.
15 Purchased merchandise on account, P620,000.
22 Received cash for sales made on account.
28 Paid the amount due for merchandise purchased.

DATE ACCOUNT TITLE DR CR

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 Course Code: ACC 102
Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

DATE ACCOUNT TITLE DR CR

3) Activity 4: What I Know Chart, part 2 (2 mins)

Now, I really would like to discover What You Know NOW by referring to the third column of the
Chart contained in your Activity 1.

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 Course Code: ACC 102
Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

4) Activity 5: Check for Understanding (5 mins)

Directions: Match the description below with relevant documents as follows:

A. Purchase Requisition F. Official Receipt
B. Purchase Order G. Statement of Account
C. Credit Memorandum H. Deposit Slips
D. Bill of Lading I. Receiving Report
E. Invoice J. Check

1. This is an authorization made by the buyer to the seller to deliver the merchandise as detailed in the
form.
2. The document issued by the seller authorizing the return of merchandise due to errors in delivery
terms.
3. This document evidences the receipt of cash by the seller.
4. The document prepared by the seller of goods and sent to a buyer detailing the specifics of a sale.
5. It is a written request to the purchaser of an entity from a user department of the same entity that
goods be purchased.
6. It is a written order to a bank by a depositor to pay the specified amount from his checking account
to the person named.
7. These are printed forms with depositor’s name, account number and details of deposit.
8. It specifies contractual conditions and terms of delivery of goods.
9. It is a formal notice to the debtor detailing the accounts already due.
10. It contains information about goods received from a vendor.

A. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 mins)
Congratulations for finishing this module! Shade the number of this module that you have finished.

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 Course Code: ACC 102
Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

b) Think about your learning by filling up your “My Learning Tracker” below. Write your learning targets,
your scores, and learning experience for this session and deliberately plan for our next learning
session.

Date Learning Target/Topic Scores Action Plan

What module# did you do? What
What’s the date
were the learning targets? What
today?
activities did you do?
What contributed to the quality of your performance today?
What were your scores
What will you do next session to maintain your performance or
in the activities?
improve it?

FAQs

1. What does income statement of a service entity differs from that of the merchandising business?

- To provide a better measure of performance, the income statement of merchandising business is

presented with the following items:

Service Merchandising

Income Statement Income Statement

Revenue from Services Net Sales

minus
Cost of Sales
minus equals
Gross Profit
add or minus
Expenses Income or Expenses

equals equals
Profit Profit

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 Course Code: ACC 102
Module #10

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

KEY TO CORRECTION

Activity 3:

DATE ACCOUNT TITLE DR CR

January 1 Cash 230,000
Sales 230,000

4 Accounts Receivable 450,000

Sales 450,000

10 Purchases 150,000
Cash 150,000

15 Purchases 620,000
Accounts Payable 620,000

22 Cash 230,000
Accounts Receivable 230,000

28 Accounts Payable 150,000

Cash 150,000

Activity 5
1. B 6. J
2. C 7. H
3. F 8. D
4. E 9. G
5. A 10. I

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