Session 4

MERCHANDISING PART 2 (PERIODIC)

Periodic Inventory System:
 Does not maintain inventory records during the year
 Relies on physical count of inventory at the end of the year
 Usually used for goods with low prices but maintained in large quantities (hardware, groceries
etc.)
 Management is not informed about the level of inventory during its operations
 Accounts used:
 Purchases
 Freight In
 Purchase Returns and Allowances
 Purchase Discounts
Comparison of Periodic and Perpetual:
PERIODIC PERPETUAL
Purchase Purchases Merchandise Inventory
Cash/Accounts Payable Cash/Accounts Payable
Return Accounts Payable Accounts Payable
Purchase Return and Allowance Merchandise Inventory
Sale Accounts Receivable Accounts Receivable
Sales Sales

Cost of Goods Sold

Merchandise Inventory

EXERCISE 1:
Wendel Merchandises is engaged in the following transactions for the month of October:
Oct. 6 Bought Equipment from Jerald Co., for P55,000.
7 Sold Merchandise on credit to Lacson Co., terms n/30, FOB shipping point,
P30,000.
8 Purchased merchandise on credit from Orcajada Co., terms n/30, FOB
shipping point, P60,000
9 Paid Mendoza Co. for shipping charges on merchandise purchased on Oct.8,
P2,540.
10 Purchased merchandise on credit from Ortiz Co., terms 2/10 n/30, FOB
shipping, P90,000. Freight prepaid by Ortiz, P6,000.
13 Purchased office supplies on credit from Isagan Co., terms n/10, P24,000
14 Sold merchandise on credit to Pabelico Co., terms n/30, FOB Shipping,
P24,000
14 Returned damaged merchandise received from Orcajada Co. on Oct.8 for
credit, P6,000.
15 Wendel invested an additional P100,000 cash in its business.
17 Received check payment from Lacson Co. for his purchase on Oct. 7
18 Returned a portion of the office supplies received on Oct. 13 for credit P4,000
19 Sold merchandise for cash, P18,000
 20 Paid Ortiz Co. for purchase on Oct. 10
21 Purchased merchandise for cash, P30,000.

Provide the Journal Entries under the Periodic Method:

DATE
SPECIAL JOURNALS AND SUBSIDIARY LEDGERS
Subsidiary Ledgers – detailed breakdown of many general ledger accounts. Often used for
Accounts Payable, Inventory, Accounts Receivable etc.
ILLUSTRATION:

SUBSIDIARY LEDGERS GENERAL LEDGER

Customer A Accounts Receivable
7,000 20,000

Customer B
9,000
Customer C
4,000

SPECIAL JOURNALS
 Book of original entry other than the general journal
 Designed for recording specific types of transactions
 Mostly used special journals are:
 Sales Journal
 Cash Receipts Journal
 Purchases Journal
 Cash Disbursement Journal
 General Journal
 Advantages of Special Journal
 Permits division of labor
 Reduces recording time
SALE JOURNALS
 Specifically designed to record sales of merchandise on account.
 Amount recorded in the sales journal are posted daily to the subsidiary ledger to keep a
current record of the accounts receivable from each customer
 At the end of the month, when all sales have been recorded and the sales journal has been
totaled and ruled, the total sales figure is posted to the general ledger as a debit to accounts
receivable and credit to sales account.
Date Invoice Account Debited Post Accounts Rec. Dr./
No. Ref. Sales Cr.
CASH RECEIPTS JOURNAL
 All transactions involving cash receipts are recorded here.
 The main source of cash are collections on account and cash sales
 Also included in the journal are columns that are designed to record account titles and credit to
other accounts resulting from cash receipts not related to cash sales and collections on
account.
Date O.R. Description Debits Credits
No. Cash Sales Accounts Sales Other Accounts
Discount Receivable Account Title PR Amount

PURCHASES JOURNAL
 Designed to account for purchases of merchandise, supplies and other assets on account.
Date R.R. Account PR Credits Debits
NO. Credited Accounts Purchases Supplies Other Accounts
Payable Account PR Amount
Title

CASH DISBURSEMENTS JOURNAL

 All cash payments are recorded here.
Date Ck. Description Credits Debits
No. Cash Purchase Accounts Purchases Other Accounts
Discount Payable Account PR Amount
Title
Indicate in which of the five journals each transaction must be recorded:
1. Sale of merchandise for cash.
2. Sale of merchandise on account.
3. Cash refund to a customer.
4. Receipt of cash from a customer in settlement of an account.
5. Purchase of merchandise on account.
6. Purchase of merchandise for cash.
7. Payment of salaries.
8. Note payable sent to a creditor in settlement of an account.
9. Payment of interest on a mortgage.
10. Receipt of a note in settlement of a customer’s account.