Accounting Cycle of a

Merchandising Business Part 2

Learning Objectives:
Prepare the statement of Cost of Goods
Sold and Gross Profit
•Complete the accounting cycle of a
merchandising business
Recording in the General and Special
Journals
• Illustration:
A business had the following transactions during a period:
1. Sold goods for 30,000 cash
2. Sold goods for 50,000 on account
3. Purchased goods worth 10,000 for cash
4. Purchased goods worth 20,000 on account
5. Received 8,000 rent income from a tenant
6. Acquired equipment worth 100,000 in exchange for a one-year note
payable
7. Collected 25,000 accounts receivable
Requirements:
a. Identify the type of journal each of the transactions above shall be
recorded
b. Record the transactions in the Special journals or General journal.
 The Accounting Cycle of a Merchandising
Business
• Identifying and analyzing
• Journalizing
• Posting
• Unadjusted trial balance
• Adjusting entries
• Adjusted trial balance/Worksheet
• Financial statements
• Closing entries
• Post-closing trial balance
• Reversing entries
Illustration 1:
Entity B’s trial balance as of January 1, 20x1 is shown below:
Entity B
Trial Balance
January 1, 20x1
Accounts Dr Cr

Cash 60,000
Inventory, beg. 40,000
Equipment 200,000
Accum. Depreciation 20,000
Accounts Payable 30,000
Owner’s equity 250,000
Totals 300,000 300,000
The following were the transactions during 20x1:
a. Purchase of inventory worth ₱ 160,000 on account.
b. Paid freight of ₱ 3,000 on the purchase above.
c. Returned damaged goods worth ₱ 2,000.
d. Sold inventory costing ₱ 180,000 for ₱ 270,000 cash
e. Customers returned goods with sale price of ₱ 6,000 and cost of ₱
4,000.
f. Paid ₱ 180,000 accounts payable.
g. Paid utilities expense of ₱ 20,000.
Additional information: Year-end adjustment
• Annual depreciation is ₱ 20,000
• Ending inventory per physical account is ₱ 25,000.
Requirements:
 Complete the worksheet up to the balance sheet columns (but prepare
the closing entries)assuming Entity B uses the perpetual inventory
systems.
 Complete the worksheet up to the balance sheet columns (but prepare
the closing entries) assuming Entity B uses the periodic inventory
system.
Illustration 2:
• The records of a business show the following information: Sales,
724,200; Sales discounts, 10,000; Sales returns, 3,600; and
Freight-in, 5,300. How much is the net sales? Php 710,600
• The records of a business show the following information: Sales,
426,800; Inventory, beg. 22,400; Purchases, 220,000; Freight-
in, 12,000; Purchases discounts, 4,500; Sales returns, 21,600;
and Purchase returns, 3,000. How much is the net purchases?
Php 224,500
• The records of a business show the following information: Sales,
364,000; Purchases, 252,000; Freight-in, 11,000; Purchase
discounts, 4,900; Sales returns, 12,600; Purchase returns,
3,000; Inventory, beg. 22,400; and Inventory, end. 15,000. How
much is the total goods available for sale? Php 277,500
• Use the above information. How much is cost of goods sold?
Php 262,500
• Inventory, beg. 33,000; Net purchases, 128,000; Cost of goods sold, 96,000. How
much is the Inventory, end?
• Inventory, beg. 89,000; Net purchases, 217,000; Cost of goods sold, 154,000. How
much is the Inventory, end?
• Inventory, beg. 20,000; Net purchases, 176,000; Inventory, end., 90,000. How much
is the Cost of goods sold?
• Inventory, beg. 24,000; Cost of goods sold, 89,000; Inventory, end., 19,000. How
much is the net Purchases?
• Inventory, end. 62,000; Net purchases, 216,000; Cost of goods sold, 244,000. How
much is the inventory, beg?
• Inventory, end. 148,000; Net purchases, 236,000; Cost of goods sold, 344,000. How
much is the Total Goods Available for Sale?
• Net purchases, 170,000; Increase in inventory during the year, 40,000. How much
is the cost of goods sold?
• Net purchases, 170,000; Decrease in inventory during the year, 40,000. How much
is the cost of goods sold?
• Cost of goods sold, 720,000; Increase in inventory during the year, 80,000. How
much is the net purchases?
• Inventory, beg., 4,000; Total goods available for sale, 190,000; Cost of goods sold,
169,000. How much is the change in inventory during the year? Increase (decrease)
• Total goods available for sale, 71,000; Net purchases, 59,000; Inventory, end., 5,000.
How much is the change in inventory during the year? Increase (decrease)