MODULE 9A

Accounting for Merchandising Business - Point of View of the Buyer

OVERVIEW
▪ Accounting for merchandising business considers the two points of view, namely: (1) buyer, and (2) seller.
▪ Different accounts are used if th merchandising business is at the point of view of the buyer or of the seller.
▪ In trading business, merchandise items called goods are purchased at cost and then sold at selling price which is the cost plus
profit or mark-up. These goods are not produced by the business itself but purchased and without changing its form sell at a
profit.
▪ Merchandise or goods are also called commodities or products.
▪ Credit transactions normally have payment terms.

TWO PARTIES IN MERCHANDISING BUSINESS

▪ The two parties in merchandising business are the following:
1) The buyer
▪ The party who purchases goods from the seller:
a) either on cash basis or on account basis
b) in bulk or not in bulk
c) and shoulders the cost of transporting the goods from the seller's location to his place.
d) and later on returns the goods to seller due to major defects or inferior quality
e) and later on ask for for reduction in price due to minor defects of goods purchased but not returned.
2) The seller
▪ The party who sells the goods to the buyer:
a) either on cash basis or on account basis
b) in bulk or not in bulk
c) and shoulders the cost of transporting the goods from his place to buyer's location.
d) and later on receives the goods from the buyer due to major defects or inferior quality.
e) and later on grants a reduction in selling price due to minor defects of goods sold but not returned.

PAYMENT TERMS
▪ The credit terms are normally expressed in fraction as follows:

No. Credit Terms EXAMPLES

1 2/10 - This means 2% discount based on net
amount will be granted by the seller if the buyer will
pay the account in full within 10 days from the
invoice date.
n/30 - This means net 30 days or the full invoice
amount is due in 30 days without a discount.
On June 1, 2022, P 10,000 worth of goods were sold to a customer.
Terms: 2/10, n/30.
Case 1: If the account will be paid by customer between June 2 to
June 11, the discount to be granted by the seller is P 200 (P 10,000
x 2%). Instead of paying P 10,000, the customer will pay only P
9,800 (P 10,000 - P 200).

Case 2: If the account will be paid by customer after June 11 but

not later than July 1 (the 30th day from invoice date), there will be
no discount to be granted by the seller. The account will be paid by
the buyer at P 10,000.

2 2/EOM - This means if the buyer pays by the
account by theend of the month of purchase may
received or deduct a 3% discount from the invoice
price.
On September 1, 2022, P 20,000 worth of goods were sold to a
customer. Terms: 2/EOM, n/60.
Case 1: If the account will be paid by customer until September 30
(end of month of invoice), the discount to be granted by the seller is
P 400 (P 20,000 x 2%). Instead of paying P 20,000, the customer
will pay only P 19,600 (P 20,000 - P 400).

Case 2: If the account will be paid by customer after September 30

but not later than October 31 (the 60th day from invoice date),
there will be no discount to be granted by the seller. The account
will be paid by the buyer at P 20,000.
TYPES OF DISCOUNT
In trading business, there are two types of discounts that are usually negotiated by both the buyer and the seller, namely: (1) trade
discount, and (2) cash discount.

TRADE DISCOUNT CASH DISCOUNT

1 Purpose To encourage customers to purchase in To encourage early payment of accounts
bulk (large quantity) or in volume in full.
2 Timing of grant Upon acquisition (buyer) or upon sale After acquisition (buyer) or sale (seller)
(seller) Within the discount period
3 Expression In percentage In fraction
4 Basis of computation List Price Net balance of the accounts after
deducting returns and allowances
5 Recognition Not recorded in accounting books Recorded in accounting books
6 Account name during Sales Discount (Seller)
recognition None Purchase Discount (Buyer)

GOODS IN TRANSIT
▪ These are the goods on stage of delivery.
▪
These goods are usually in the middle of somewhere else between the location of the seller and the buyer like ocean or seas.
▪ The issue regarding this is WHO IS THE OWNER OF THESE GOODS AT THE END OF REPORTING DATE?

SHIPPING TERMS
▪
Shipping terms are also called INCOTERMS which is the elided word that shortens International Commercial Terms and
recognized throughout the world. They tell each party concisely what is expected of them in selling and in contract negotiations.
▪ For basic accounting purposes, the two common shipping terms introduced are tge following:
1) FOB shipping point
2) FOB destination
▪ In shipping, FOB means free on board or freight on board.

SHIPPED ON IN TRANSIT ON REACHED DESTINATION

December 30, 2022 December 31, 2022 January 3, 2023

CEBU PORT MANILA PORT

You own No! You own

SELLER FROM CEBU BUYER FROM MANILA

Seller Buyer

FOB SHIPPING POINT FOB DESTINATION

1 Transfer of ownership
from buyer to seller
2 Recognition of revenue
and expenses
3 Ownership of goods in
transit
4 Burden of delivery
charges or freight cost
As soon as the shipment leaves the
seller's warehouse (or shipping dock)
Seller - Record sales revenue when the
goods leave the warehouse (or shipping
dock)
Buyer - Record Purchases when the
goods leave the seller's warehouse (or
shipping dock)
Buyer owns the goods enroute to its
warehouse
Buyer
As soon as the goods arrived at the
buyer's dock (destination).
Seller - Record sales revenue when the
goods arrived the buyer's dock.
Buyer - Record Purchases when the
goods arived the buyer's dock.
Seller still owns the good while in transit.
Seller
 ACCOUNTING FOR PURCHASES (POINT OF VIEW OF THE BUYER)

RELATED ACCOUNTS FOR BUYER - PERIODIC INVENTORY SYSTEM

▪ The accounts to be used by the buyer will depend if inventory is accounted for using either the periodic system or the perpetual
system. For this discussion, the periodic inventory system is used.

No. Account Names Accounting Element Normal Bal. FS Presentation

1. Purchases Expense Debit Income statement - Cost of Sales
2. Purchase returns Contra-expense Credit Income statement - Cost of Sales
3. Purchase allowances Contra-expense Credit Income statement - Cost of Sales
4. Purchase discount Contra-expense Credit Income statement - Cost of Sales
5. Freight-in Adjunct account Debit Income statement - Cost of Sales
6. Merchandise Inventory, beginning Expense Debit Income statement - Cost of Sales
7. Merchandise Inventory, ending Asset Debit Statement of Financial Position - CA
Income Credit Income statement - Cost of Sales

▪ Description of account titles

1) Purchases the acquisition cost of goods purchased from suppliers.
2) Purchase returns the acquisition cost of goods previously purchased but returned to suppliers due
to defects, wrong specifications, and other acceptable reasons.
3) Purchase allowances the reduction in acquisition cost of goods previously purchased and discovered
with defects but not returned to suppliers.
4) Purchase discount the amount of discount granted by suppliers to customers for early payment of
accounts.
5) Freight - in the delivery cost paid by the customer for transporting the goods from the seller's
location to his location or warehouse; also called transportation-in or inward
transportation.
6) Merchandise inventory, ending the unsold cost of goods or merchandise at the end of the accounting period.
7) Merchandise inventory, beginning the unsold cost of goods or merchandise at the beginning of the accounting
period; this is the merchandise inventory at the end of the last accounting period
that is forwarded to the next accounting period.

FINANCIAL STATEMENT PRESENTATION

▪ Income Statement:
Net Sales xxx
Less: Cost of Sales
Merchandise Inventory, beginning xxx
Add: Purchases
Less: Purchase returns xxx
Purchase allowances xxx
Purchase discount xxx xxx
Net purchases xxx
Add: Freight-in xxx xxx
Cost of goods available for sale xxx
Less: Merchandise Inventory xxx
Gross profit from sales xxx

▪ Statement of Financial Position

Current Assets:
Cash and Cash Equivalents xxx
Trade and Other Receivables xxx
Merchandise Inventory xxx

ILLUSTRATION 1:
During the month of December 2022, the following purchases transactions were completed by Happy Trading:

2022
Dec. 1 - Cash purchases or merchandise from ABC Trading worth P 20,000.
5 - Purchased merchandise from Joy Marketing with a list price of P 30,000. Terms: 2/10, n/30.
5 - Paid P 2,000 to Good Boy Trucking Services to transport the goods purchased.
6 - Received credit memo from Joy Marketing for goods returned, P 2,000.
10 - Made partial payment of account to Joy Marketing, P 10,000.
15 - Full payment of account to Joy Marketing.

Requirements:
1) Journalize the transactions using the periodic inventory accounting system.
2) Compute the total net purchases for December 2022.
3) Assuming the account was paid in full on December 16, 2022, what would be the journal entry to record the full payment of
account?
SOLUTION GUIDE:
Supporting Analysis:
Asset Liability Equity
Date Transaction Cash Acct. Pay. Capital Expenses
2022
Dec. 1 Cash purchases or merchandise from (20,000) (20,000) Purchases 20,000
ABC Trading worth P 20,000.
5 Purchased merchandise from Joy
Marketing with a list price of P 30,000. 30,000 (30,000) Purchases 30,000
Terms: 2/10, n/30.
5 Paid P 2,000 to Good Boy Trucking
Services to transport the goods (2,000) (2,000) Freight-in 2,000
purchased.
6 Received credit memo from Joy
Marketing for goods returned, P 2,000. (2,000) 2,000 Purchase Returns (2,000)

10 Made partial payment of account to Joy

Marketing, P 10,000. (10,000) (10,000)

15 Full payment of account to Joy

Marketing. (17,640) (18,000) 360 Purchase Discount (360)

1) Journalize the transactions.

Date Account Names Debit Credit
2022
Dec. 1 Purchases 20,000
Cash 20,000
Cash purchases.

5 Purchases 30,000
Accounts Payable - Joy Marketing 30,000
Terms: 2/10, n/30

5 Freight-in 2,000
Cash 2,000
Paid freight charges.

6 Accounts Payable - Joy Marketing 2,000

Purchase Returns 2,000
Return of defective merchandise.

10 Accounts Payable - Joy Marketing 10,000

Cash 10,000
Partial payment of account.

15 Accounts Payable - Joy Marketing 18,000

Purchase Discount 360
Cash (17,640)
Full payment of account.

2) Compute the total net purchases for December 2022.

SOLUTION:
Purchases 50,000
Less: Purchase Returns 2,000
Purchase Discounts 360 2,360
Net purchases 47,640
Add: Freight - in 2,000
Total net purchases 49,640

3) Assuming the account was paid in full on December 16, 2022, what would be the journal entry to
record the full payment of account?
SOLUTION:
Date Account Names Debit Credit
2022
Dec. 1 Accounts Payable - Joy Marketing 18,000
Cash 18,000
Full payment of account
ILLUSTRATION 2:
During the month of December 2022, the following purchases transactions were completed by Long Road Trading:

2022
Dec. 1 - Cash purchases or merchandise from Boom Trading with a list price of P 20,000. Trade discount is 10%.
8 - Purchased goods from Grandeur Company a list price of P 50,000. Terms: 10-20, 2/EOM, n/30.
8 - Paid P 5,000 to Bravo Freight Forwarders to transport the goods purchased.
9 - Received credit memo from Grandeur Company for purchase allowance, P 2,000.
30 - Full payment of account to Grandeur Company.

Requirements:
1) Journalize the transactions using the periodic inventory accounting system.
2) Compute the total net purchases for December 2022.
3) Assuming the account was paid in full on February 10, 2023, what would be the journal entry to record the full payment of
account?

SOLUTION GUIDE:
Supporting Analysis:
Asset Liability Equity
Date Transaction Cash Acct. Pay. Capital Expenses
2022
Dec. 1 Cash purchases or merchandise from
Boom Trading with invoice price of P
20,000. Trade discount is 10%. (18,000) (18,000) Purchases 18,000
Computation:
P 20,000 x (100% - 10%) = P 18,000

8 Purchased goods from Grandeur

Company with invoice price of P 50,000.
Terms: 10-20, 2/EOM, n/30. 14,400 (14,400) Purchases 14,400

Computation:
P 20,000 x 90% x 80% = P 14,400
8 Paid P 5,000 to Bravo Freight
Forwarders to transport the goods (5,000) (5,000) Freight-in 5,000
purchased.
9 Received credit memo from Grandeur
Company for purchase allowance, P (2,000) 2,000 Purchase allowances 2,000
2,000.
30 Full payment of account to Grandeur
Company. (12,072) (12,400) 328 Purchase Discount 328
Computation:
(P 14,400 - P 2,000) x 2% = P 328

1) Journalize the transactions.

Date Account Names Debit Credit
2022
Dec. 1 Purchases 18,000
Cash 18,000
Cash purchases.

8 Purchases 14,400
Accounts Payable - Grandeur Company 14,400
Terms: 10-20, 2/EOM, n/30.

8 Freight-in 5,000
Cash 5,000
Paid freight charges.

9 Accounts Payable - Grandeur Company 2,000

Purchase Allowances 2,000
Reduction in purchase cost with CM.

30 Accounts Payable - Grandeur Company 12,400

Purchase Discount 328
Cash 12,072
2) Compute the total net purchases for December 2022.
SOLUTION:
Purchases 32,400
Less: Purchase Allowances 2,000
Purchase Discounts 328 2,328
Net purchases 30,072
Add: Freight - in 5,000
Total net purchases 35,072

3) Assuming the account was paid in full on February 10, 2023, what would be the journal entry to
record the full payment of account?
SOLUTION:
Date Account Names Debit Credit
2023
Feb. 10 Accounts Payable - Joy Marketing 12,400
Cash 12,400
Full payment of account

ACCOUNTING FOR SALES (POINT OF VIEW OF THE SELLER)

RELATED ACCOUNTS FOR SELLER - PERIODIC INVENTORY SYSTEM

▪ There will be additional accounts to be used by the SELLER if the inventory is accounted for using either the perpetual system.
For this discussion, the periodic inventory system will be used.

No. Account Names Accounting Element Normal Bal. FS Presentation

1. Sales Revenue Credit Income statement - Net Sales
2. Sales returns Contra-revenue Debit Income statement - Net Sales
3. Sales allowances Contra-revenue Debit Income statement - Net Sales
4. Sales discount Contra-revenue Debit Income statement - Net Sales
5. Freight-out Expense Debit Income statement - Distribution Cost
6. Merchandise Inventory Asset Debit Statement of Financil Position - CA

▪ Description of account titles

1) Sales the selling price of the goods sold to customers
2) Sales returns the selling price of goods previously sold but returned by customers due to
defects, wrong specifications, and other acceptable reasons.
3) Sales allowances the reduction in selling price of goods previously sold, although with minor
defects, but not returned by customers.
4) Sales discount the amount of discount granted to customers for early payment of accounts.
5) Freight - out
the cost of transporting the goods to buyer's location or warehouse paid by the
seller; also called transportation-out, delivery expense, or outward transportation.
6) Merchandise inventory the account where all increases (like purchases and sales returns) and decreases
(like sales and purchase returns) of inventories are recorded.

FINANCIAL STATEMENT PRESENTATION

▪ Income Statement:
Sales Revenue xxx
Less: Sales Returns xxx
Sales Allowances xxx
Sales Discounts xxx xxx
Net Sales xxx
Less: Cost of Sales xxx
Gross profit from sales xxx
Less: Operating Expenses
Distribution costs:
Freight-out xxx
Administrative costs xxx xxx
Net Income xxx

▪ Statement of Financial Position

Current Assets:
Cash and Cash Equivalents xxx
Trade and Other Receivables xxx
Merchandise Inventory xxx
ILLUSTRATION 3:
During the month of December 2022, the following sales transactions were completed by Wise Trading:

2022
Dec. 1 - Cash sales of merchandise to Crazy Company, P 30,000.
7 - Sold goods to Excited Marketing with a list price of P 50,000. Terms: 2/10, n/30.
7 - Paid P 3,000 to Hagibis Trucking Services to transport the goods sold to customer.
8 - Issued a credit memo to Excited Marketing for goods returned, P 2,000.
12 - Made partial collection of account from Excited Marketing, P 20,000.
17 - Full collection of account from Excited Marketing.

Requirements:
1) Journalize the transactions using the periodic inventory accounting system.
2) Compute the net sales for December 2022.
3) Assuming the account was collected in full on December 16, 2022, what would be the journal entry to record the full collection of
account?

SOLUTION GUIDE:
Supporting Analysis:
Asset Equity
Date Transaction Cash Acct. Rec. Capital Revenue Expense
2022
Dec. 1 Cash sales of merchandise to Crazy 30,000 30,000 Sales 30,000
Company, P 30,000.
7 Sold goods to Excited Marketing with
invoice price of P 50,000. Terms: 2/10, 50,000 Sales 50,000
n/30.
7 Paid P 3,000 to Hagibis Trucking
Services to transport the goods sold to (3,000) (3,000) Freight-out 3,000
customer.
8 Issued a credit memo to Excited Sales
Marketing for goods returned, P 2,000. (2,000) (2,000) Returns (2,000)

12 Made partial collection of account from

Excited Marketing, P 20,000. 20,000 (20,000)

17 Full collection of account from Excited Sales

Marketing. 27,440 (28,000) (560) Discount (560)

1) Journalize the transactions.

Date Account Names Debit Credit
2022
Dec. 1 Cash 30,000
Sales 30,000
Cash sales

7 Accounts Receivable - Excited Marketing 50,000

Sales 50,000
Terms: 2/10, n/30.

7 Freight-out 3,000
Cash 3,000
Paid freight costs.

8 Sales Returns 2,000

Accounts Receivable - Excited Marketing 2,000
Issued credit memo for returns.

12 Cash 20,000
Accounts Receivable - Excited Marketing 20,000
Partial collection of accounts.

17 Cash 27,440
Sales Discounts 560
Accounts Receivable - Excited Marketing 28,000
Full collection of accounts.
2) Compute the total net purchases for December 2022.
SOLUTION:
Sales 80,000
Less: Sales Returns 2,000
Sales Discounts 560 2,560
Net Sales 77,440

3) Assuming the account was paid in full on December 16, 2022, what would be the journal entry to
record the full payment of account?
SOLUTION:
Date Account Names Debit Credit
2022
Dec. 1 Cash 28,000
Accounts Receivable - Excited Marketing 28,000
Full collection of account

ILLUSTRATION 4:
During the month of December 2022, the following sales transactions were completed by Good Day Trading:

2022
Dec. 5 - Cash sales to High-Five Trading with a list price of P 100,000. Trade discount is 20%.
12 - Sold to Mountain Company with a list price of P 200,000. Terms: 5-10-15, 3/EOM, n/30.
12 - Paid P 5,000 to Charlie Freight Forwarders to transport the goods to Mountain's warehouse.
13 - Issued credit memo to Mountain Company for goods sold with minor defects, P 5,000.
28 - Received cash from Mountain Company in full settlement of account.

Requirements:
1) Journalize the transactions using the periodic inventory accounting system.
2) Compute the total net purchases for December 2022.
3)
Assuming the account was paid in full on January 2, 2023, what would be the journal entry to record the full payment of account?

SOLUTION GUIDE:
Supporting Analysis:
Asset Equity
Date Transaction Cash Acct. Rec. Capital Revenue Expense
2022
Dec. 5 Cash sales to High-Five Trading with Sales
invoice price of P 100,000. Trade 80,000 Revenue 80,000
discount is 20%.
Computation:
P 100,000 x 80% = P 80,000

12 Sold to Mountain Company with invoice Sales

price of P 200,000. Terms: 5-10-15, 145,350 Revenue 145,350
3/EOM, n/30.
Computation:
P 200,000 x 95% x 90% x 85%
12 Paid P 5,000 to Charlie Freight
Forwarders to transport the goods to (5,000) (5,000) Freight-out 5,000
Mountain's warehouse.
13 Issued credit memo to Mountain Sales
Company for goods sold with minor (5,000) (5,000) Allowance (5,000)
defects, P 5,000.
18 Received cash from Mountain Company Sales
in full settlement of account. 136,140 (140,350) Discount 4,211
Computation:
(P 145,350 - P 5,000) x 3%
1) Journalize the transactions.
Date Account Names Debit Credit
2022
Dec. 5 Cash 80,000
Sales 80,000
Cash sales

12 Accounts Receivable - Mountain Company 145,350

Sales 145,350
Terms: 2/10, n/30.

12 Freight-out 5,000
Cash 5,000
Paid freight costs.

13 Sales Allowances 5,000

Accounts Receivable - Mountain Company 5,000
Issued credit memo for returns.

18 Cash 136,140
Sales Discounts 4,211
Accounts Receivable - Mountain Company 140,350
Full collection of accounts.

2) Compute the total net purchases for December 2022.

SOLUTION:
Sales 225,350
Less: Sales Allowances 5,000
Sales Discounts 4,211 9,211
Net Sales 216,140

3) Assuming the account was paid in full on February 10, 2023, what would be the journal entry to
record the full payment of account?
SOLUTION:
Date Account Names Debit Credit
2023
Jan. 2 Cash 140,350
Accounts Receivable - Mountain Company 140,350
Full collection of account

EXERCISES

EXERCISE 1 (Buyer's related accounts)

Indicate the normal balance of the following accounts:

Debit 1. Freight - in
Credit 2. Purchase Discount
Debit 3. Purchases
Credit 4. Purchase Returns
Credit 5. Purchase Allowances

EXERCISE 2 (Computation of Total Net Purchases)

Determine the total net purchases of the following independent assumptions:

Case 1 Case 2
Purchases 150,000 250,000
Purchase Returns 3,000 5,000
Purchase Allowances 1,000 6,000
Purchase Discount 500 2,000
Freight - in 10,000 -
SOLUTION:
Case 1 Case 2
Purchases 150,000 250,000
Purchase Returns (3,000) (5,000)
Purchase Allowances (1,000) (6,000)
Purchase Discount (500) (2,000)
Freight - in 10,000 -
Total net purchases 155,500 237,000

EXERCISE 3 (Computation of purchases amount after trade discount)

Determine the net amount of purchases using the following independent assumptions:

Case 1 Case 2 Case 3

List Price 600,000 750,000 750,000
Trade discount 5% 2%; 10% 3, 8, 10

SOLUTION:
Case 1 Case 2 Case 3
List Price 600,000 750,000 750,000
Trade discount 5% 2%; 10% 3, 8, 10
Net purchases 570,000 661,500 602,370

EXERCISE 4 (Computation of purchase discount)

Determine the amount of purchase discount using the following independent assumptions:

Case 1 Case 2 Case 3

Invoice price 200,000 300,000 400,000
Trade Discount 5% - -
Payment term 2/10 2/EOM 2/10, 1/20
Freight-in 10,000 15,000 18,000
Purchase Returns 3,000 - 4,000
Purchase Allowances - 1,000 1,000

Purchase Discount:
a) Paid within 10 days 3,740 7,900
b) Paid within 20 days 3,950
c) Paid at month end 5,980
d) Paid after 10 days 0
e) Paid after 20 days 0
f) Paid after EOM 0

EXERCISE 5 (Journal Entries)

(Source: Accountin Principles 2nd Philippine Edition by Fess, Niswonger, Mangoba)

Montalban Corpo. Purchases merchandise from Regal Company on account, P 200,000, terms FOB shipping point, 2/10,
n/30. Regal Company adds transportation charges of P 3,000 to the invoice. Montalban returns some of the merchandise,
receiving a credit memorandum for P 10,000, and then pays the amount due within the discount period.

Present Montalban Corporation's entries, in general journal form without explanation. The entity is using the periodic
inventory accounting system.

SOLUTION:
Date Account Names Debit Credit

1 Purchases 200,000
Accounts Payable - Regal Company 200,000
.
2 Freight-in 3,000
Accounts Payable - Regal Company 3,000

3 Accounts Payable - Regal Company 10,000

Purchase Returns 10,000

3 Accounts Payable - Regal Company 193,000

Purchase Discount 3,800
Cash 186,200
Computations: .
Discount: (P 200,000 - P 10,000) x 2%
EXERCISE 6 (Journal Entries - Buyer)
(Source: Accountin Principles 2nd Philippine Edition by Fess, Niswonger, Mangoba)
Purchases on account and related returns and allowanbces completed by Union Bookstore during May, 2022 are described
below:

2022
May 2 - Purchased merchandise on account from Torres Stationery, Inc., P 61,050.
4 - Purchased merchandise on account from Grove Publishing Co.,,P 150,000.
5 - Received a credit memorandum from Torres Stationery, Inc, for merchandise returned, P 6,050.
10 - Purchased office equipment on account from Noel Equipment Co., P 92,500.
11 - Purchased office supplies on account from David Supply Corporation, P 12,010.
13 - Purchased merchandise on account from Torres Stationery, Inc., P 42,050.
17 - Purchased merchandise on account from Young Publishers, P 94,075.
17 - Received a credit memorandum from David Supply Corp. for office supplies returned, P 1,520.
20 - Purchased merchandise on account from Klein Press, Inc., P 98,000.
24 - Received a credit memorandum from Gove Publishing Co., as an allowance for damaged merchandise, P
5,500.
26 - Purchased store supplies on account from David Supply Corp., P 7,870.
27 - Purchased merchandise on account from Young Publishers, P 58,130.
30 - Purchased office supplies on account from David Supply Corp., P 9,860.

Required:
Journalize the above purchase transaction (without explanation).

SOLUTION:
Date Account Names Debit Credit
2022
May 2 Purchases 61,050
Accounts Payable - Torres Stationery, Inc. 61,050

4 Purchases 150,000
Accounts Payable - Grove Publishing Co. 150,000

5 Accounts Payable - Torres Stationery, Inc. 6,050

Purchase Returns 6,050

10 Office Equipment 92,500

Accounts Payable - Noel Equipment Co. 92,500

11 Office Supplies 12,010

Accounts Payable - David Supply Corp. 12,010

13 Purchases 42,050
Accounts Payable - Torres Stationery, Inc. 42,050

17 Purchases 94,075
Accounts Payable - Young Publishers 94,075

17 Accounts Payable - David Supply Corp. 1,520

Office Supplies 1,520

20 Purchases 98,000
Accounts Payable - Klein Press, Inc. 98,000

24 Purchase Allowances 5,500

Accounts Payable - Gove Publishing Corp. 5,500

26 Store Supplies 7,870

Accounts Payable - David Supply Corp. 7,870

27 Purchases 58,130
Accounts Payable - Young Publishers 58,130

30 Office Supplies 7,870

Accounts Payable - David Supply Corp. 7,870
EXERCISE 7 (Journal Entries - Buyer)
(Source: Accountin Principles 2nd Philippine Edition by Fess, Niswonger, Mangoba)

Present the general journal entries for the related transactions of Flores Company using the periodic inventory system.

a) Purchased P 100,000 of drapery fabrics from Mila Mills on account. Terms: 1/10, n/30.
b) Paid the amount owed on the invoice within the discount period.
c) Discovered that many of the fabrics were not colorfast and returned items with an invoice price of P 40,000,
receiving credit.
d) Purchased additional P 30,000 fabrics from Mila Mills on account. Terms 1/10, n/30.
e) Received a check for the balance owed from the return in (c), after deducting for the purchase in (d).

SOLUTION GUIDE:
No. Account Names Debit Credit
a) Purchases 100,000
Accounts Payable - Mila Mills 100,000

b) Accounts Payable - Mila Mills 100,000

Purchase Discount (P 100,000 x 1%) 1,000
Cash 99,000

c) Accounts Receivable - Mila Mills 40,000

Purchase Returns 40,000

d) Purchases 30,000
Accounts Payable - Mila Mills 30,000

e) Cash 40,000
Accounts Receivable - Mila Mills 40,000

EXERCISE 8 (Seller's related accounts)

Indicate the normal balance of the following accounts:

Debit 1. Freight - out

Debit 2. Sales Discount
Credit 3. Sales Revenue
Debit 4. Sales Returns
Debit 5. Sales Allowances

EXERCISE 9 (Computation of Net Sales)

Determine the total net purchases of the following independent assumptions:

Case 1 Case 2
Sales Revenue 300,000 280,000
Sales Returns 6,000 5,000
Sales Allowances 400 6,000
Sales Discount 600 2,000
Freight - out 15,000 -

SOLUTION:
Case 1 Case 2
Sales Revenue 300,000 280,000
Sales Returns (6,000) (5,000)
Sales Allowances (400) (6,000)
Sales Discount (600) (2,000)
Net Sales 293,000 267,000

EXERCISE 10 (Computation of Sales discount)

Determine the amount of sales discount using the following independent assumptions:

Case 1 Case 2 Case 3

Invoice price 400,000 600,000 800,000
Trade Discount 10% - -
Payment term 2/10 3/EOM 2/10, 1/20
Freight-out 8,000 10,000 20,000
Sales Returns Returns 5,000 - 2,000
Sales Allowances - 2,000 1,000
 Sales Discount:
a) Collected within 10 days 7,100 15,940
b) Collected within 20 days 7,970
c) Collected at month end 17,940
d) Collected after 10 days 0
e) Collected after 20 days 0
f) Collected after EOM 0

EXERCISE 11 (Journal Entries - Seller)

(Source: Accountin Principles 2nd Philippine Edition by Fess, Niswonger, Mangoba)
Record the following transactions in the form of general journal entries:

May 2 - Sold merchandise to a customer for P 200,000, terms FOB shipping point, 1/10, n/30.
2 - Paid the transportation charges of P 5,000, debiting the amount to Accounts Receivable.
6 - Issued a credit memorandum for P 10,000 to customer for merchandise returned.
12 - Received a check for the amount due from sale.

SOLUTION GUIDE:
No. Account Names Debit Credit
2022
May. 2 Accounts Receivable 200,000
Sales Revenue 20,000
Terms: 1/10, n/30

2 Accounts Receivable 5,000

Cash 5,000
Paid transportation charges.

6 Sales Returns 10,000

Accounts Receivable 10,000
Sales returnes.

12 Cash 193,100
Sales Discount 1,900
Accounts Receivable 195,000