Professional Documents
Culture Documents
ACCT 1026 Lesson 7 - Merchandising
ACCT 1026 Lesson 7 - Merchandising
Tuguegarao City
REMINDERS:
Lessons will be uploaded every Monday, and submission of assessments will be every Friday of the
week.
Comply with all requirements (written outputs, projects/performance tasks examinations and the like.)
Turn in learning tasks on time to avoid backlogs.
For this week, the following shall be your guide for the different lessons and tasks that you need to
accomplish. Be patient, read them carefully before proceeding to the tasks expected of you.
LEARNING CONTENT
We are now done with the accounting cycle for a service company. The accounting process for the various
forms of business organizations are almost similar except for a few accounts. In this module, we will be
delving on the peculiar transactions for a merchandising or trading business entity,
Inventory is the term for the goods available for sale and raw materials
used to produce goods available for sale. Inventory represents one of
the most important assets of a business because the turnover of
inventory represents one of the primary sources of revenue
generation.
Inventory types:
raw materials
work in progress
finished goods inventory
merchandise inventory
Recording of payments are the same for either inventory method (assume P7 discount)
PERPETUAL PERIODIC
Dr Accounts receivable 1 050 Dr Accounts receivable 1 050
Cr Inventory 525
Inventory costs comprise of all expenditures both direct and indirect, relating to acquisition,
preparation, and placement for sale.
Discounts can change the total inventory costs.
Trade Discounts
Convert the catalog price to the actual price.
Record inventory at discounted price.
Cash Discounts
Granted for payment of invoices within a limited time period.
Record inventory using the net method or gross method.
ACCT 1026 – Financial Accounting and Reporting | 6
PROBLEM 1
How many units did Eversoll, Inc. sell during June? ANSWER: 50+115+75-90= 150 UNITS
PROBLEM 2
How much is the ending inventory on January 31? ANSWER: 10-8+50-48= 4 UNITS
PROBLEM 3
During the current period, Audix Corp. sold products to customers for a total of P76,000. Due to defective
products, customers were given P2,800 in refunds for products that were returned and another P3,500 in
reductions to their account balances. Discounts in the amount of P5,500 were given for early payment of
account balances.
PROBLEM 4
Based upon the following data, determine the cost of merchandise sold for April.
ANSWER:
Purchases Returns and Allowances- is an account that is paired with and offsets the purchases account in
a periodic inventory system. The account contains deductions from purchases for items returned to suppliers,
as well as deductions allowed by suppliers for goods that are not returned.
Purchases Discounts- is a deduction that a company may receive if the supplier offers it and the company
pays the supplier's invoice within a specified period of time. The purchase discount is also known as a cash
discount or early-payment discount.
Freight-in- The shipping cost to be paid by the buyer of merchandise purchased when the terms are FOB
shipping point.
When you are shipping freight to your customers, the cost of making that delivery is an expense that comes
out of your ledger as a debit. This is considered a selling expense and is known as freight-out. When you
make a purchase and the supplier bills you for shipping that is referred to as freight-in.
Hound Dog Bisquits reported the following financial data for 2019 and 2020:
2019 2020
Sales P700,000 P600,000
Sales returns and allowances (10,000) (D)
Net sales 690,000 580,000
Cost of goods sold:
Inventory, January 1 30,000 E
Net purchases A 340,000
Goods available for sale 250,000 380,000
Inventory, December 31 (40,000) (30,000)
Cost of goods sold B F
Gross profit C G
====== ======
Provide the answer for each missing letter above.
ANSWER:
PROBLEM 6
Compute the purchases and the net income of Carlton for 2018, 2019, and 2020, assuming that the firm
sells its merchandise at 25 percent above cost.
PROBLEM 7
Truffles Company purchased merchandise on account from a supplier for P6,500, terms 2/10, net 30. Truffles returned
P1,500 of the merchandise and received full credit. Truffles Company paid for the merchandise within the discount
period.
Under a perpetual inventory system, record all of the journal entries required for the above transactions.
ANSWER:
The following data were extracted from the accounting records of Marcus Gallery for the year ended February 28,
2020.
Prepare the cost of merchandise sold section of the income statement for the year ended February 28, 2008,
using the periodic system. Also determine gross profit.
ANSWER:
Marcus Gallery
Income Statement
For the Year Ended February 28, 2020
Sales P680,000
Less: Sales returns 20,000
Net Sales P660,000
Cost of Merchandise Sold
Merchandise inventory, March 1, 2019 450,000
Purchases 175,000
Less: Purchases returns and allowances P25,000
Purchase discounts 10,000 35,000
Net Purchases 140,000
Plus: Transportation in 5,000
Cost of Merchandise Purchased 145,000
Merchandise available for sale 595,000
Less merchandise inventory, February 28, 2008 225,000
Cost of merchandise sold 370,000
Gross profit P290,000
This diagram shows when ownership of goods in transit passes from the seller to the buyer.
To record sale to Buyer Company To record credit purchase and freight charges
Freight – in P400
Cash P400
https://www.slideshare.net/KarlaJeanMedina/value-added-tax-taxable-sales-philippines
1) VAT Cash Sales Sales Invoice #143 was issued for P5,400 and 12% VAT was added accordingly.
Entry
Cash 6,048
Sales 5,400
Output Tax (5400 x 112%) 648
2) The company issued VAT charge Sales Invoice #144 to Gloria Labandera for P22,000, terms 3/10 n/30.
3) The company accepted the return of defective goods and cash amounting to P2,800, VAT inclusive, was
returned by the customer in no 01 above.
4) The customer in No 2, Gloria Labandera above requested for a Sales Allowance of P672 for a slight
defect on the merchandise given to her. The seller issued a credit memorandum to acknowledge the
request. The sale was subject to VAT.
5) Gloria Labandera paid her account in full within the discount period.
Purchases subject to the 12% VAT has the same treatment as Sales with VAT only that you are recording
from the point of view of the buyer. The 12% VAT added to the buyer’s purchases are recorded as Input
tax.
Below is sample invoice with VAT. Observe how it is presented and computed in an actual Invoice.
Value-added Tax will be discussed in detail in your Income Tax subjects. The intention of this discussion is to
give the student a bird’s eyeview of a real life scenario.
Salaries expense is debited whenever payroll for employees’ compensationis prepared usually every 15th
and 30th of the month. Compensation for daily and weekly laborers may also be included, in which case the
account is accordingly entitled: Salaries and Wages.
SSS Premiums Payable are mandatory contributions deducted from the employees’ gross pay to be
remitted to the Social Security System on or before the deadline on the following month.
The SSS Premiums apply to both the employer and employees. Thus, on the same payroll day, the employer
will record his share of the employees SSS premiums with the following enty:
On the remittance date, the total of the employer and employee contribution will be remitted to the Social
Security System with the following entry:
Philhealth Contributions Payable is another government mandated deduction. The employer also has his
counterpart to this deduction. It is remitted to the Philippine Health Insurance Corporation as a total of the
employer and employee contribution on the following month on or before the designated due date.
Pag-ibig Contributions Payable is also a government mandated deduction. The company-employer share
is also recorded on the same payroll date. It is remitted in total to the Pag-ibig the following month after the
month of deduction.
Withholding Taxes Payable are income taxes withheld by the company- employer from the taxable
compensation of employees. Under the new Train Law, employees whose compensation and other income
exceeds P250,000 per year will be deducted every month and remitted by the employer the following month.
For computation of the withholding tax, there is a tax table provided, see this example below:
The company-employer normally provides a payslip to its employees that give details about their gross
income with their corresponding deductions for a payroll period. A sample payslip is provided below:
Sample
Payslip
End of Lesson 7
REFERENCES:
Textbooks
1. Ballada, W. (2019). Basic Financial Accounting and Reporting. Manila: DomDane Publishers.
2. Cabrera, E.(2017) Fundamentals of Accounting Volume I, GIC Enterprises & Co., Inc., Manila
3. Millan, Z. V. (2020). Financial Accounting and Reporting (Fundamentals). Baguio City: Bandolin
Enterprise.
4. Valencia, E. and Roxas, G. (2017), Basic Accounting, Valencia Educational Supply
ACCT 1026 – Financial Accounting and Reporting | 19
Online Reference
1. https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounting-equation/
2. https://bobsteelecpa.com/accounting-equation-account-types-and-the-double-entry-accounting-
equation/
3. https://www.bookstime.com/what-is-the-accounting-equation
4. https://www.accountingcoach.com/blog/expanded-accounting-equation
5. https://accounting-simplified.com/equity.html
6. https://www.investopedia.com/
7. https://courses.lumenlearning.com/suny-finaccounting/chapter/the-account-needed-for-a-
merchandising-business/
8. https://blog.ordoro.com/2012/01/16/types-of-inventory-systems-the-perpetual-inventory-system/
Drill No 01
On January 10, 2020, Marissa Barandino Fruits Dealer purchased P18,000 worth of merchandise from
Pascual Gener ; terms 1/10, n/30, F.O.B. shipping point. On Janaury 12, 2020, Barandino paid P360 freight
on the shipment. On January 15, 2020, Barandino returned P2,000 of merchandise on credit. Final payment
to Pascual Gener was made on January 19, 2020. Marissa Barandino uses the periodic inventory method.
Drill No 02
Analyze and give journal entries under the periodic inventory system for these merchandising transactions of
Magdiwang Merchandising for the month of July 200A. Goods sold by the company are subject to VAT.
1. For the month of March 2021, total gross salaries of office personnel was P62,000 from which were made
deductions for SSS Contributions of P4,400; Philhealth Contributions of P2,800 and Pag-ibig Contributions of
P5,700. Net Pay was credited to Payroll Payable. (5 pts)
2. For the month of May 2021, the employer’s counterpart for SSS contributions was P6,800. SSS premiums
deducted from employees’ payroll recorded during the month was P4,500. Give the journal entry to record
the remittance to SSS. (5 pts)
3. For the end of the month payroll July 2021, the total employees’ contribution of P2,500 for the Pagibig
Fund was deducted from employees’ gross payroll amounting to P22,000. Give the journal entries to record
Salaries and Wages. (5 pts)