a DEPARTMENT OF EDUCATION é 2 SCHOOLS DIVISION OF NEGROS ORIENTAL q REGION VII Kagawasan Ave., Daro, Dumaguete City, Negros Oriental DESCRIBING THE NATURE OF TRANSACTIONS IN A MERCHANDISING BUSINESS for Fundamentals of Accountancy, Business and Management 1 Senior High School (ABM) Quarter 2 / Week 3 Property of Schools Division of Negros Oriental | lrmds.depednodis.net_ | (035) 225 2376 / 225 2838FOREWORD This Self Learning Kit for Fundamentals of Accountancy, Business and Management 1_ is designed specifically for Grade 11 ABM students. In this learning kit, ABM students will gain knowledge on the basic accounting concepts, theories, as well as analysis on the different business transactions. It is aligned with the BEC of the Department of Education following the prescribed MELCs (Most Essential Learning Competencies. It has the following features proven to be valuable aids to learning Accounting even at home. What happened This section contains pre-activities like review of the prior knowledge and a pretest on what you have learned in their previous discussions. What I Need To Know (Discussion) This section contains definition of terms, examples and the corresponding analysis on the different nature of transactions in a merchandising business, its operating cycle and the different journals used to record business transaction. What | have Learned (Post Test) The exercises contained in this section are guaranteed to build accounting comprehension, - skills, and competence. These serve as a diagnostic tool to identify your areas of strengths and difficulties.OBJECTIVES: K. Explain the nature of transactions of a merchandising business. S. Describe the different business documents & inventory systems used in merchandising. A. Show the importance and benefits of merchandising business in our community. I, WHAT HAPPENED You are now done exploring what is o Service Business, its transactions and its accounting cycle. Now, let us proceed to another| type of business activity popular in our community today. Can you identity what type of business activity is this as being shown by these bits tin sludenis.com/what-s- inventory himlPRE-TEST: TEST YOUR UNDERTADING | A. Direction: Identify the following establishments it is a Service Business or a Merchandising Business, Write S$ for Service Business and M for Merchandising Business. Write your answers on your notebook/activity sheets. 1 PNADRYON Nena’s Restaurant David Salon Puregold Go Dental Clinic Citi Hardware Mercury Drug Grocery Store Lito's Repair Shop TEST YOUR UNDERTADING 2 B. Direction: List down five (5) examples of merchandising business that you can find in our community. Merchandising Business (Examples) 1 2.|. WHAT YOU NEED TO KNOW A merchandising business is a business engaged in a buying and selling of goods or products. Also, "trading" and “retailing” describes a merchandising business. The primary product of this business is the "merchandise" items it sells. Meaning, there's a presence of physical products which are being purchased and sold. This business in order to eam, the entity buys goods and adds markup or profit to the cost of goods then sells them to the customers. (http://wbbbb- ums. blogspot com/2012/07 /nature-of-merchandising-busini imi) DISCUSSION NATURE OF TRANSACTIONS OF A MERCHANDISING BUSINESS A merchandising company is an enterprise that buys and sells goods to eam profit. Examples: + Rose Pharmacy + Puregold * Ace Hardware + Grocery Stores TYPES OF MERCHANDISERS 1. Wholesaler - one who buys in bulk or volume directly from a manufacturer and sells the goods to a retailer 2. Retailer - one who sells products to end users Merchandise (or merchandise inventory) refers to goods that are held for sale to customers in the normal course of business. This includes goods held for resale. For example: * Candies, canned goods, noodles sold at a grocery stores + Juice, biscuits sold in a grocery store + Medicines sold in a pharmacy Note: If a grocery store decided to sell an old computer used in the office, this would not be merchandise because grocery stores do not normally sell computers and the store is simply selling off old office equipment. But a computer would be merchandise for a computer store who resells computer units. Merchandise for one firm may be a fixed asset {or property and equipment) for another. 5In another example, a pharmacy decided to sell a table used in their display area. This table is not merchandise of a pharmacy. However, to retail fumiture store a table is merchandise because the business of a furniture store involves the buying and selling of tables. Amerchandiser’s primary source of revenue is sales revenue or sales. Expenses for a merchandising company are divided into two (2) categories: 1. Cost of goods sold (COGS) - the total cost of merchandise sold during the period; and 2. Operating expenses (OP) - expenses incurred in the process of earning sales revenue that are deducted from gross profit in the income statement. Examples are sales salaries and insurance expenses. Note: Gross profit (GP) is equal to Sales Revenue less the Cost of Goods Sold. Income measurement process for a merchandiser follows as: Sales - [Cost of Gross Profit |- |Operating | Net Goods 5 Expenses Income Sold (cos Loss)‘A MERCHANDISING BUSINESS Collect OPERATING CYCLE ‘from isa ap Buy merchandise why ae (http://wbbbb-ams. blogspot.com/2012/07/nature-of- merchandising-business.html) Merchandising Company operating cycle (cash to cash) involves: 1. Buy merchandise inventory 2. sellinventory to customer 3. Obtain Accounts Receivable/ Collect from Customer 4, Receive cash The operating cycle for a merchandising company starts with having cash available, buying merchandise inventory, selling the merchandise to customers, and finally collecting payment from customers JOURNALIZING THE TRANSACTIONS IN A MERCHANDISING BUSINESS Step 1, transactions are identified and measured. At this stage, the documents used by the business are analyzed to see whether these transactions have financial impact or effect. Recall the rule that only financial transactions are recorded and that the amount can be measured. These two conditions must exist in order for a particular transaction to be recognized or recorded. As defined, financial transactions are those activities that change the value of an asset, liability or equity.Step 2s the Preparation of Journal Entries (Journalization) A merchandising company may use special and general journals to record its transactions. SPECIAL JOURNALS: Some businesses encounter voluminous quantities of similar and recuring transactions, which may create congestion if these transactions are recorded repeatedly in a single day or monthly in the general journal. The use of special journals will eliminate this problem. The following are the commonly used special journals: 1. Cash Receipts Journal -used to record all cash that had been received 2. Cash Disbursements Joumal -used to record all transactions involving cash payments 3. Sales Journal (Sales on Account Journal] -used to record all sales on credit (on account) 4, Purchase Joumall (Purchase on Account Joumal) -used to record al purchases of inventory on credit (or on account) INVENTORY SYSTEMS Maintaining inventory items is a unique set-up in a merchandising business. There are two methods of accounting for inventory, namely: Perpetual Inventory System and Periodic Inventory System. Merchandising entities may use either of the following inventory systems: 1. Perpetual System — Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs. For example, a car dealership has separate inventory records for each vehicle. + Record purchase of Inventory. + Record revenue and record cost of goods sold when the item is sold. + At the end of the period, no entry is needed except to adjust inventory for losses, etc. 2. Periodic System — Cost of goods sold is determined only at the end of an accounting period. This system involves: * Record purchase of Inventory. + Record revenue only when the item is sold. 8+ At the end of the period, you must compute cost of goods sold (COGS) 1. Determine the cost of goods on hand at the beginning of the accounting period (Beginning Inventory = Bi), 2. Add it to the cost of goods purchased (COGP), 3. Subtract the cost of goods on hand at the end of the accounting period 4, (Ending Inventory = E)) ilustrated as follows: +|/COGP =Cost of goods available| - | EI =| COGS for sale Additional Considerations: Perpetual systems have traditionally been used by companies that sell merchandise with high unit values such as automobiles, furniture, and major home appliances. With the use of computers and scanners, many companies now use the perpetual inventory system. The perpetual inventory system is named because the accounting records continuously — perpetually —show the quantity and cost of the inventory that should be on hand at any time. The periodic system only periodically updates the cost of inventory on hand. A perpetual inventory system provides better control over inventories than a periodic inventory, since the records always show the quantity that should be on hand. Then, any shortages from the actual quantity and what the records show can be investigated immediately.I. WHAT HAVE | LEARNED POST TEST: LET'S HAVE AN EVALUATION! Direction: Choose the best answer for each of the following questions. Write your answer in your activity notebook. 1. The following are part of the operating cycle of a merchandising business except___ a. receive Cash __ c. buy Merchandise Inventory b. obtain Accounts Payable —_d.. sell Inventory 2. Which of the following establishments is a merchandising business? a. Barber Shop ¢. Dental Clinic b. Restaurant d. Pharmacy 3. Its a type of business activity that buys and sells goods to eam a profit. a. Service Business c. Merchandising Business b. Manufacturing Business d. None of these 4, It refers to the total cost of merchandise sold during the period. a. Beginning Inventory c. Ending Inventory b. Cost of Goods Sold d. Operating Expenses 5. Itis a type of special journal used to record all transactions involving cash payments. a. Purchase Journal c. Cash Receipts Journal b. Sales Journal d. Cash Disbursements Journal 6. Another type of journal used to record alll cash that had been received a. Cash Receipts Journal c. Sales Journal b. . Cash Disbursements Journal d. Purchase Journal 7. Amerchandising inventory system where cost of goods sold is determined only at the end of an accounting period. a. Ending Inventory c. Periodic System b. Beginning Inventory d. Perpetual System 8. Itis.a type of merchandiser who sells products to end users. 10a. Buyer c. Wholesaler b. Retailer d. Customer 9. It is the expenses incurred in the process of eaming sales revenue. a. Cost of Goods Sold —_c. Sales Expense b. Inventory Expense d. Operating Expenses 10. Analyze the following statements: Statement 1: A periodic inventory system provides better control over inventories than a perpetual inventory. Statement 2: The periodic system only periodically updates the cost of inventory on hand. a. Only Statement 1 is True c. Both Statements are True b. Only Statement 2 is True d. Both Statements are False SENREFERENCES Carlsberg S. Andres, Arthur P. Barrido,Jr., Christopher B. Honorario. 2016. Teaching Guide for Senior High School FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 1. Quezon City: Commission on Higher Education. Long, Flocer Lao. 2016. Fundamentals of Accountancy, Business, and Management 1 for Senior High School. Quezon City: © & E Publishing, Ine. (2014, January 4). Retrieved November 7, 2020, from WBBB Acounting and Management Services: http://wbbbb- ams. blogspot.com/2012/07/nature-of-merchandising-business.html 2