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FUNDAMENTALS
OF ABM 1
QUARTER 4

ACTIVITY SHEETS
Fundamentals of Accountancy, Business and Management 1 - Grade 11
Learning Activity Sheets
Quarter 4

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Published by the Department of Education – Schools Division of Tacloban City

Schools Division Superintendent: Mariza S. Magan
Assistant Schools Division Superintendent: Edgar Y. Tenasas

Department of Education - Region No. VIII – Schools Division Office of Tacloban City
Office Address: Real St., Tacloban City

Learning Activity Sheet in

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS
AND MANAGEMENT 1

2
 Quarter 4 - Week 3
Grade 11

Name: ___________________________________ Grade and Section: _______________

Activity Sheet No. 3 Date Answered: ___________________

Lesson 3 MERCHANDISING BUSINESS

Learning Competencies:
Describes the nature of transactions in a merchandising business

Let’s Kick It Off!

Activity 1. IDENTIFY ME!

Direction: Look at the pictures below. Write (√) if it is a merchandising business
and
(X) if not. Do this in a separate sheet of paper

2 3
https://www.dunnhumby.com/resources/
https://fintechranking.com/2020/06/09/ https://www.pinterest.ph/pin/
blog/covid-19/en/in-store-pharmacy-back-
ayannah-reveals-merger-new-entity-seeks- 334884922292863682/
to-a-different-future/
up-to-50m-in-series-b-round/sari-sari-

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 4 Are You Taking 5
https://www.facebook.com/sscthrmzone/posts/
It?
https://www.tripadvisor.com.ph/
good-news-sm-city-tacloban-soon-to-open/ ShowUserReviews-g297885-d2238839-
234511560007934/ r487333044-Dongmun_Market-

Activity 2. TRUE OR FALSE!

Direction: Identify if the statement below is TRUE or
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FALSE. Choose your answer
inside the box. Write the letter of your choice in
https://www.greatschools.org/gk/articles/
the-school-visit-what-to-look-for-what-to-
a separate sheet of paper.

A Both Statements are true

B Only Statement I is true
C Only Statement II is true
D Both Statements are false

1. Statement I - Buying and selling are the primary activities of a

merchandising business.
Statement II - Under the merchandising concern, the business can be a
buyer at one hand and a seller on the other hand.

2. Statement I - The periodic and perpetual inventory systems can also be

used in a service business.
Statement II - The presence of inventory makes a merchandising business
different from a service business.

3. Statement I - Inventory is the most important asset of a service business.

Statement II - Service business and merchandising business both use
periodic and perpetual inventory keeping.

4. Statement I - Cash discounts are called “sales discounts” from the point of
view of the seller.
Statement II - Cash discounts are called “purchase discounts” from the
point of view of the buyer.

5. Statement I - Under periodic inventory system, purchase of merchandise is

debited to “purchases”.
Statement II - Under periodic inventory system, purchase of merchandise is
debited to “merchandise inventory”.

6. Statement I - Freight-out refers to transportation expense in buying

merchandise from a seller

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 Statement II - Freight-in refers to transportation expense in selling
merchandise to a customer.

Here’s How It Is!

Nature of Merchandising Business

A merchandising business is a company that buys goods and resells these
goods, without making any modifications, at a price higher than its purchase price
for the purpose of making profit. Inventory (or merchandise inventory) is the most
important asset of a merchandising business as this is where the company derives
its regular revenue streams. Basically, there are two (2) major activities that are
involved in a merchandising business, these are buying and selling activities.

Inventory Systems
There are two (2) systems used in keeping of merchandise inventory records.
These are Periodic and Perpetual inventory systems.
 Periodic Inventory System. Under this inventory system, the company
provides data on inventory levels at some points in time. A physical count is
made usually at the year-end to provide figures as to how many exist at that
point in time.
 Perpetual Inventory System. Under this inventory system, the company
keep track of all changes in the inventory account. There is a continuous
updating of the ins and outs in the stock card every time there are
purchases and sale of merchandise.

Journalizing Transactions in a Merchandising Business

Journalizing transactions in a merchandising company is basically the same
with that of a business concern only that there are additional account titles used in
a merchandising company. The following account titles are used in journalizing
merchandising business under periodic inventory system:

o Merchandise Inventory, End

This refers to the unsold merchandise at the end of the accounting period
as determined by the physical counting or inventory taking.

o Merchandise Inventory, Beginning

This refers to merchandise inventory at the beginning of the period and is
usually dated January 1.

o Purchases
This account is debited when merchandise is purchased either in cash or
on credit.
Journal Entry: Purchases xx
Cash or Accounts Payable xx

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o Purchase Discounts
This account is credited when there is discount availed from a supplier
for early payment of merchandise purchased on credit.
Journal Entry: Accounts Payable xx
Purchase Discounts xx
Cash xx

o Purchase Returns and Allowances

This account is credited for merchandise purchased either in cash or on
credit that were returned to the supplier for reason of bad order or does not
fit to the description of the merchandise ordered and were not replaced due
to non-availability of stocks of merchandise by the supplier.
Journal Entry: Cash/Accounts Payable xx
Purchase Return and Allowances xx

o Freight-in
This account is debited for the freight and handling charges of
merchandise purchased by the buyer or customer and shipped via land, sea
and air transportation.
Journal Entry: Freight-in xx
Cash xx

o Sales
This account is credited for merchandise that are sold either in cash or
on credit.
Journal Entry: Cash/Accounts Receivable xx
Sales xx

o Sales Discount
This account is debited for sales discount given to a customer for early
collection from his/her account.
Journal Entry: Cash xx
Sales Discount xx
Accounts Receivable xx

o Sales Return and Allowances

This account is debited for merchandise sold either in cash or on credit
but were returned by the customer for reason of bad order or does not fit the
description of the merchandise ordered and were not replaced due to non-
availability of stock.
Journal Entry: Sales Return and Allowances xx
Cash/ Accounts Receivable xx

o Freight-out
This account is debited for freight and handling charges of merchandise
sold to customers and shipped via land, sea and air transportation.
Journal Entry: Freight-out xx
Cash xx

Discount Terms

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 The term Cash Discounts has two connotations. It can either be a purchase
discounts from the buyer’s viewpoint or sales discounts from the seller’s
viewpoint. Cash discounts are inducements to both buyer and seller for prompt
payment or prompt collection of account purchase and account sales.
The following are the common discount terms both for purchases and sales:

o 2/10, n/30 - This means that if the account is paid/collected within

10 days from the date of the invoice, a 2% discount can be
availed or given and no discount if the account is
paid/collected after the 10th day or from the 11th to 30th days.
o 2/10, 1/20, N/30 - This means that a 2% discount can be availed or
given if the account is paid/collected within 10 days from the
invoice date, 1% if paid/collected from the 11 th to 20th days and
no discount if paid/collected from the 21st to the 30th day.
o 2/10, EOM - This means that a 2% discount can be availed or given if
the account is paid/collected 10 days after the End of the
Month.
Example:
The amount of merchandise bought was P35,000 and 2% discount is
given/availed if paid within 10 days. The deadline for payment was met.
Computation:
Amount of merchandise P35,000
Less: 2% cash discount (35,000 x 2%) 700
Invoice Price P34, 300

ILLUSTRATIVE EXAMPLE OF JOURNALIZING TRANSACTIONS

UNDER PERIODIC INVENTORY SYSTEM

The following were the transactions of Metro Tacloban Hardware and Auto
Supply, a business owned by Mr. Arnold Go.
On Jan. 2, Mr. Go invested the following to the company:
o Bank deposit with Banco Sentro Tacloban, P800,000.
o Merchandise inventory with a fair value of P200,000.

Journal Entry: Dr. Cr.

Cash in Bank 800,000
Merchandise Inventory 200,000
A. Go, Capital 1,000,000
Owner’s investment.

On Jan. 3, the company purchased merchandise in cash from B. Ocampo

Co. costing P150,000 and paid freight of P1,500.

Journal Entry: Dr. Cr.

Purchases 150,000
Cash in Bank 150,000
Purchase of merchandise for cash.

Freight-in 1,500
Cash in Bank 1,500

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 Payment of freight on purchase.

On Jan. 4, the company returned P4,000 cost of merchandise to B. Ocampo

Co. due to some defects.

Journal Entry: Dr. Cr.

Cash in Bank 4,000
Purchase Return & Allowances 4,000
Return of merchandise purchased
from B. Ocampo Co.

On Jan. 6, the company sold merchandise for cash, P160,000 to J. Suarez

and paid freight on shipment, P3,000.

Journal Entry: Dr. Cr.

Cash in Bank 160,000
Sales 160,000
Sale of merchandise for cash.

Freight-out 3,000
Cash in Bank 3,000
Freight on merchandise sold.

On Jan. 8, the company received P20,000 worth of merchandise from J.

Suarez Co. for not conforming with the order and was not replaced.

Journal Entry: Dr. Cr.

Sales Return & Allowances 5,000
Cash in Bank 5,000
Return of merchandise sold in Cash.

On Jan. 10, the company purchased merchandise on account from E. Lopez

Trading amounting to 60,000. Term: 3/10, 2/20, N/30.

Journal Entry: Dr. Cr.

Purchases 60,000
Accounts Payable 60,000
E. Lopez Trading, 3/10, 2/20, N/30

On Jan. 11, the company sold merchandise on account to F. Ayala Co.,

P250,000. Paid freight on shipment, P1,000. Term: 2/10, N/30.

Journal Entry: Dr. Cr.

Accounts Receivable 250,000
Sales 250,000
F. Ayala Co., 2/10, N/30.

Freight-out 1,000
Cash in Bank 1,000
Freight on merchandise sold.

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On Jan. 12, the company received P1,600 worth of merchandise return from
F. Ayala Co. and was not replaced. (refer to Jan. 11 transaction)

Journal Entry: Dr. Cr.

Sales Return & Allowances 1,600
Accounts Receivable 1,600
Return of merchandise sold on account.

On Jan. 13, The company purchased merchandise on account from J. Faller

& Sons costing P5,500. Term: 2/20, N/30.

Journal Entry: Dr. Cr.

Purchases 5,500
Accounts Payable 5,500
J. Faller & Sons, 2/20, N/30.

On Jan. 14, the company returned P500 cost of merchandise to J. Faller &
Sons for defective merchandise.

Journal Entry: Dr. Cr.

Accounts Payable 500
Purchase Return & Allowances 500
Return of merchandise purchased
from J. Faller & Sons.

On Jan 15, the company paid the account with E. Lopez Trading (refer to
Jan.10 transaction).

Journal Entry: Dr. Cr.

Accounts Payable 60,000
Cash in Bank 58,200
Purchase Discount 1,800
Paid E. Lopez Trading.

Note: the company availed the 3% discount since it was able to pay within 10
days from the invoice date. (from Jan. 10-15).

On Jan. 21, the company collected accounts from F. Ayala Co. (refer to Jan.
11 and 12 transactions).

Journal Entry: Dr. Cr.

Cash in Bank 243,432
Sales Discount 4,968
Accounts Receivable 248,400
Collection of sales on account.

Note: Accounts Receivable was derived after deducting the sales return and
allowances. (250,000-1,600 = 248,400).

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 On Jan 25, the company paid account with J. Faller & Sons. (refer to Jan.
13 and 14 transaction)

Journal Entry: Dr. Cr.

Accounts Payable 5,000
Cash in Bank 4,900
Purchase Discount (2%) 100
Paid J. Faller & Sons.

Note: Accounts Payable was derived after deducting the purchase return and
allowances. (5,500-500 = 5,000).

Now Do It!

Activity 3. Journalizing under Periodic Inventory System

Direction: Journalize the following transactions using the periodic inventory

system.
The first one is done for you. Do this in a separate sheet of paper.

1. A) On March 5, the company sold merchandise to Realty Store on credit for

P5,000, Term: 3/10, N/30. Paid freight on merchandise sold, P150.
Journal Entry:
Dr. Cr.
A/R (Accounts Receivable) 5,000
Sales 5,000
Realty Store, 3/10, N/30.

Freight-out 150
Cash 150
Freight on merchandise sold.

B) On March 6, the company received P500 worth of merchandise from

Realty Store due to some defects.
C) On March 13, the company collected from Realty Store.

2. A) On Dec. 8, the company purchased merchandise on credit from GC

Limited
for P2,600, Term: 2/10, 1/20, N/30. The company paid freight on
purchase
of P250.
B) On Dec. 9, the company returned P300 cost of merchandise to GC Limited
due to bad order.
C) On Dec. 23, the company paid for the merchandise purchased on Dec. 8.

3. A) On March 11, the company bought merchandise on account from ABM

Store for P25,000, Term: 2/10,N/30.
B) On March 13, the company returned P1,200 cost of merchandise to ABM
Store for not conforming to the order.
C) On March 22, the company paid the account from March 11 transaction.

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 4. A) On May 15, the company sold merchandise to SHS Ltd. on credit,
P15,000,
Term: 3/10, 2/20, N/30. The company paid freight on merchandise sold,
P750.
B) On May 16, the company received P1,500 cost of merchandise from SHS
Ltd. due to some defects.
C) On May 26, the company collected account from SHS Ltd.

Activity 4. Journalizing, Posting and Trial Balance Preparation

Ace It!

Assessment:
Direction: Read each question and choose the correct answer. Write the letter of
your choice in a separate sheet of paper.
1. What type of business generates income from buying and selling of
merchandise?
a. service business c. manufacturing business
b. merchandising business d. partnership business

2. Aside from selling activity, what other activity can a merchandising business
perform?
a. buy and sell c. purchasing activity
b. service activity d. manufacturing activity

3. What method of inventory keeping is characterized by the use of stock card?

a. calendar inventory c. periodic inventory
b. perpetual inventory d. merchandise inventory

4. When is physical inventory count usually conducted?

a. at the end of the period c. at the start of the period
b. during mid-season d. when there is pilferage

5. Which of the following accounts is NOT used under periodic inventory

system?
a. freight-in c. purchases
b. sales d. cost of sales

6. A company buys merchandise costing P30,000 and returned P6,000 cost of

merchandise. If the discount term is 2/10, N/30 and the company pays
within the discount period, how much amount should it pay to the seller?
a. P23,550 c. P480
b. P24,000 d. P23,520

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 7. L. Hembra Store sold merchandise on account for P55,000 and received
cash payment of P53, 625 after deducting the sales discount. What was the
percent of sales discount?
a. 2.5% c. 3%
b. 3.5% d. 2%

8. 2/10, n/30 discount term means a 2% discount if paid/collected within 10

days __________________.
a. before the invoice date c. from the invoice date
b. after the invoice date d. after the end of the period

9. What is the entry to record the return of goods previously purchased on

account due to bad order?
a. a debit to Accounts Payable c. a debit to Purchase Discount
b. a debit to Purchase Ret. & Allow. D. a credit to Accounts Payable

10.What is the credit entry to record the payment of merchandised purchased

with a discount?
a. sales discount c. accounts payable
b. purchases d. purchase discount

References

Andres, C.S., et al. (2016). Teaching Guide for Senior High School Fundamentals of

Accountancy, Business and Management 1. Commission on Higher Education.

Lopez, Jr. R. M. (2016). Fundamentals of Accounting. MS Lopez Printing & Publishing.

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Answers Key (For Teachers Only)

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Department of Education – SDO of Tacloban City

Real St., Barangay 54, Tacloban City (Capital), Leyte, 6500