AE 111 Module 6 Merchandising Operation

COLLEGE OF COMMERCE
MODULE 6 PACKET
AE 111 – FINANCIAL ACCOUNTING & REPORTING
MODULE 6 OVERVIEW:
Welcome to Module 6 – MERCHANDISING OPERATIONS

In this module, we will discuss how to record transactions for merchandising companies.
CONSULTATION HOURS:
Phone or Messenger:
Virtual time: Class Schedule
MODULE 6 LEARNING OBJECTIVES:

By the end of this module, the students will be able to:
1. Describe merchandising activities and identify the income statement components for a
merchandising entity.
2. Illustrate the operating cycle of a merchandising entity.
3. Identify business documents and forms used by merchandising firms.
4. Compare cash discounts and trade discounts.
5. Summarize the treatment of transportation costs considering the different freight terms
6. Distinguish periodic from perpetual inventory system.
7. Analyze and record transactions for sales and purchases under a periodic inventory system.
8. Compare and contrast entries for a periodic and perpetual inventory system
2023-2024 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 1 of 23
COLLEGE OF COMMERCE
COURSE CONTENT FOR MODULE 6:

MERCHANDISING OPERATIONS
ACTIVITY DESCRIPTION TIME TO COMPLETE
Merchandising activities, operating cycle &
Lecture discussions income statement components for a 15 minutes
merchandising entity.
Source documents for merchandising firms 15 minutes
Terms of Transactions 1 hour
Analyze and record transactions for sales and
1 hour
purchases under a periodic inventory system
Compare and contrast entries for a periodic and
30 minutes
perpetual inventory system
Activity Giving instructions for the activity: 15 minutes
Quiz Summative quiz for Module 6 1 hour
LECTURE DISCUSSIONS
MERCHANDISING BUSINES
• A business entity whose main business is buying and selling good or merchandise.
Comparison of Income Statements

SERVICE MERCHANDISING
Income Statement Income Statement

Revenues from Services Net Sales
minus
Cost of Sales
minus equals
Gross Profit
add or minus
Expenses Income or Expenses
equals equals
Profit Profit
COLLEGE OF COMMERCE
Gloria Detoya Traders

Income Statement
For the Year Ended December 31, 2018
Net Sales ₱2,393,250.00

Less: Cost of Sales 1,313,600.00
Gross Profit ₱1,079,650.00
Less: Operating Expenses 586,040.00
Operating Profit ₱493,610.00
Less: Finance Costs 38,400.00
Profit ₱455,210.00
In a merchandising business, net sales arise from sale of goods or inventory for sale.
Cost of sales also known as “cost of goods sold” represent the COST of inventory that has
been sold to the customers. Gross profit is the difference between Net Sales and Cost of Sales.
Then other operating income is added and operating expenses like distribution or selling costs,
administrative costs and other operating costs are deducted from gross profit to arrive at
operating profit. Investment revenues, other gains and losses, and finance costs (interest
expense) are considered to arrive at profit before income tax, then income tax expense is
deducted to have profit from continuing operations. Finally, profit from discontinued
operations (net of tax) is taken into account to arrive at profit for the period.
COLLEGE OF COMMERCE
OPERATING CYCLE FOR A MERCHANDISING BUSINESS
SOURCE DOCUMENTS FOR A MERCHANDISING BUSINESS

1. SALES INVOICE - prepared by seller given to buyer
This document contains
➢ Name and address of Buyer
➢ Date of Sale
➢ Quantity, description, and price of goods sold
➢ Amount of Sales, Transportation and Payment Terms
2. Bill of Lading - issued by carrier – trucking, shipping, airline

This document specifies
➢ Contractual conditions
➢ Terms of Delivery e.g. Freight Terms, Time, Place and Name of Person to receive
goods
3. Statement of Account - formal notice to the debtor detailing the accounts and amounts
already due for payment
4. Official Receipt – evidences the receipt of cash by the seller or the authorized
representative. It notes the invoices paid and other details of payment.
5. Deposit Slip - a bank form to be accomplished showing the depositor’s name, account
number and details of the deposit
COLLEGE OF COMMERCE
➢ A bank-validated deposit slip indicates that the cash and checks have been deposited
and credited to the account of the holder
6. Check - a written order to a bank by a depositor to pay the amount specified in the check
from his checking account to the person named in the check.
➢ Payor - the entity issuing the check
➢ Payee - the entity named to receive the proceeds of the check
7. Purchase Requisition – a written request to the purchaser or purchasing officer of the

business entity from an employee or user department of the same entity for good/s
required for purchase.
8. Purchase Order - an authorization made by the buyer to the seller to deliver the
merchandise as detailed in the form.
9. Receiving Report - a document containing information about goods received from a

vendor. It formally records the quantities and description of the goods delivered.
10. Credit Memorandum - a form used by the seller to notify the buyer that his account is
being reduced due to errors or other factors requiring adjustments.
TERMS OF TRANSACTIONS
A. Payment Terms
1. Cash
2. Credit
➢ Credit Period – The number of days within which the invoice must be paid.
➢ n – represents the number of credit period in days
➢ n/30 – payment is expected 30days from the invoice date.
➢ n/10 eom – represents payment is required ten (10) days after the end of the
month
B. Discounts
1. Trade Discount
➢ Discount on the list price of the merchandise
➢ Vary periodically as list prices do
➢ This is not recorded in the books because accounting for cost of merchandise will
be based on the Invoice Price which is net of trade discounts (List Price minus
Trade Discount)
➢ May be given in series e.g. 20%, 10%
Sample Problem: Pinnacle Technologies quoted a list price of P2,500 for each 64-
gigabyte flash drive, less trade discount of 20%, 10%. If Video Fantastic ordered seven
units, what will be the invoice price?
COLLEGE OF COMMERCE
Solution:
List Price (P2,500 x 7) 17,500.00

Less: 20% Trade Discount 3,500.00
Balance 14,000.00
Less: 10% Trade discount 1,400.00
Invoice Price* 12,600.00
2. Cash Discount
➢ Discount given for prompt payment
➢ Cash discounts are called purchase discounts from the buyer’s viewpoint and
sales discount from the seller’s point of view.
➢ It is applied on the Invoice Price (List Price minus Trade Discount)
➢ Cash discount is designated by such notation as “2/10” which means that the
buyer may avail of 2% discount if paid within 10 days from invoice date. The period
covered by the discount, in this case – 10 days, is called the discount period.
Sample Problem: Assume that the invoice for P150,000 with terms 2/10, n/30, is to be
paid within the discount period with money borrowed for the remaining 20 days of the
credit period. If an annual interest rate of 18% is assumed, what would be the net
savings to the buyer?
Cash Discount of 2% on P150,000 3,000.00

Interest for 20 days at an annual rate of 18% on the
amount due within the discount period:
P147,000 (P150,000 - 3.000) x 18% x 20/360 1,470.00
Savings Effected by Borrowing 1,530.00
C. Transportation Costs
Freight bills usually show whether the shipping terms are FOB shipping point or FOB
destination. F.O.B. is an abbreviation for “free on board”.
1. Free on Board (FOB) Shipping Point

➢ Buyer shoulders the shipping costs
➢ Ownership passes from seller to buyer when the inventory leaves the seller’s place of
business or shipping point.
➢ Buyer owns the inventory while still in transit and therefore shoulders the
transportation costs.
COLLEGE OF COMMERCE
2. Free on Board (FOB) Destination

➢ Seller shoulders the shipping costs
➢ Ownership passes from seller to buyer when the inventory is received by the buyer at
point of destination.
➢ Seller owns the inventory while still in transit and therefore shoulders the
transportation costs.
3. Freight Prepaid
➢ Seller pays transportation costs before shipping the goods sold
➢ Normally, FOB Destination because seller shoulders transportation cost until inventory
is received by buyer
4. Freight Collect
➢ Buyer pays transportation costs upon receipt of goods
➢ Normally, FOB shipping point because buyer shoulders transportation once the
inventory leaves the place of business of the seller.
Who SHOULDERS the Who PAYS the

Freight Terms
Transportation Cost Shipper?
FOB Destination Freight Prepaid Seller Seller
FOB Shipping Point Freight Collect Buyer Buyer
FOB Destination Freight Collect Seller Buyer
FOB Shipping Point Freight Prepaid Buyer Seller
5. Transportation In (Debit)
➢ Applicable to PURCHASES (Buyer) only
➢ In Accounting, the cost of an asset includes all costs incurred to bring an asset to its
intended use or operations.
➢ Transportation in is presented in the COST OF SALES of the Income Statement
➢ It is added to the PURCHASES to compute the net cost of purchases for the period.
6. Transportation Out (Debit)

➢ Applicable to SALES (Seller) only
➢ Transportation cost shouldered by the SELLER
➢ Also called DELIVERY EXPENSE
➢ It is presented under the OPERATING EXPENSES of the Income Statement
COLLEGE OF COMMERCE
INVENTORY SYSTEMS
➢ Inventory determines the Cost of Goods Available for Sale and Cost of Goods Sold
1. PERIODIC SYSTEM is primarily used by businesses that sell relatively inexpensive

goods and are not yet using computerized scanning systems to analyze goods sold.
Under this system no entries are made to the inventory account as the merchandise is
bought and sold. The following set of accounts are used
➢ Purchases
➢ Purchase Discounts
➢ Purchase Returns & Allowances
➢ Transportation In
➢ Cost of Sales is computed
Only at the end of the period, when the inventory is counted, when entries are made to
the inventory account to establish its proper balance. Inventory per books vs. physical
inventory is closed to Income Summary account.
2. PERPETUAL INVENTORY SYSTEM is used by firms that sell low-volume, high priced
goods (such as motor vehicles, jewelry, and furniture) and by companies with point of
sale scanners. Under this system the inventory account is continuously updated.
✓ Inventory Account is used to record Purchases

✓ Cost of Sales Account is recorded when inventory is sold
✓ Ending Inventory is determined through Physical Count
✓ Cost of Sales is determined through General Ledger
✓ Inventory account is INCREASED by:
1. Purchases
2. Transportation In
3. Sales Returns
✓ Inventory account is DECREASED by
1. Cost of Sales
2. Purchase returns and allowances
3. Purchase Discount
COLLEGE OF COMMERCE
Income Statement for a Merchandising Company (Function of Expense Method) Using the
Periodic Inventory System
Gloria Detoya Traders
Income Statement
For the Year Ended December 31, 2020
Net Sales
Gross Sales ₱ 2,463,500
Less: Sales Returns and Allowances ₱ 27,500
Sales Discounts 42,750 70,250
Net Sales ₱ 2,393,250
Cost of Sales
Merchandise Inventory 1/1/2020 ₱ 528,000
Purchases ₱ 1,264,000
₱ 56,400
Less: Purchases Returns and Allowances
Purchases Discounts 21,360 77,760
Net Purchases ₱ 1,186,240
Transportation in 82,360
Net Cost of Purchases 1,268,600
Goods Available for Sale ₱ 1,796,600
Less: Merchandise Inventory 12/31/2020 483,000
Cost of Sales 1,313,600
Gross Profit ₱ 1,079,650
Operating Expenses
Selling Expenses
Sales Salaries ₱ 225,000
Transportation Out 57,400
Store Supplies Expense 15,400
Insurance Expense - Selling 5,600
Total Selling Expenses ₱ 303,400
Administrative Expenses
Office Salaries Expense ₱ 171,000
Utilities Expense 48,000
Depreciation Expense- Building 26,000
Depreciation Expense- Office Equipment 22,000
Office Supplies Expense 12,040
Insurance Expense - General 3,600
Total Administrative Expenses 282,640
Total Operating Expenses 586,040
Operating Profit ₱ 493,610
Finance Costs 38,400
Profit ₱ 455,210
COLLEGE OF COMMERCE
SAMPLE TRANSACTIONS AND JOURNAL ENTRIES FOR SALES USING PERIODIC

INVENTORY SYSTEM
Sale of merchandise in cash for P25,000

Journal Entry:
Cash 25,000
Sales 25,000
Sale of merchandise on account for P25,000

Journal Entry:
Accounts Receivable 25,000
Sales 25,000
Sales on Account with discount terms

Sept 20 - Sold merchandise for P3,000; terms 2/10, n/60
Journal Entry:
Sales 3,000
Sales Discount: Sept 30 - Received payment from sale on account of Sept 20
Journal Entry:
Cash 2,940
Sales Discount 60
Sales Return: October 01 – Returned merchandise sold on Sept 20 P760

Journal Entry:
Sales Returns 760
Accounts Receivable 760
Transportation Out – Case 1:

Nov 25 - Sold merchandise totaling P17,000 with terms FOB Destination, Freight Prepaid
P1,900; terms 2/10, n/30
Journal Entry:
Sales 17,000
Cash 1,900
COLLEGE OF COMMERCE

Nov 25 – Sold merchandise totaling P17,000 FOB shipping point, Freight collect P1,900; terms
2/10, n/30
Journal Entry:
Sales 17,000
Collection with Sales Discount

Dec 5 – Collected the account from the customer
Journal Entry:
Cash 16,660
Sales Discount 340

Nov 25 – Sold merchandise totaling P17,000 FOB Destination, Freight collect P1,900; terms
2/10, n/30
Journal Entry:
Sales 17,000

Journal Entry:
Cash 14,760
Sales Discount 340

Nov 25 – Sold merchandise totaling P17,000 FOB Shipping Point, Freight prepaidP1,900; terms
2/10, n/30
Journal Entry:
Sales 17,000
Cash 1,900

Journal Entry:
Cash 18,560
Sales Discount 340
COLLEGE OF COMMERCE
SAMPLE TRANSACTIONS AND JOURNAL ENTRIES FOR PURCHASES USING PERIODIC

INVENTORY SYSTEM
Purchase of merchandise in cash for P15,000
Journal Entry:
Purchases 15,000
Cash 15,000
Purchase of merchandise on Nov 12 on account for P15,000 with terms 2/10, n/30
Journal Entry:
Purchases 15,000
Accounts Payable 15,000
Purchase Returns: Nov 14 – Returned merchandise purchased P2,000

Journal Entry:
Purchase Returns 2,000
Payment of Purchase on Account with Discount terms

Purchase Discount: Nov 22 – Paid in full the account
Journal Entry:
Purchase Discount 260
Cash 12,740
Transportation Case 1:
Nov 25 – Purchased merchandise totaling P17,000 with terms FOB Destination, Freight Prepaid
P1,900; terms 2/10, n/30
Journal Entry:
Purchases 17,000
Payment with Discount: Dec 5 – Paid the account in full

Journal Entry:
Cash 16,660
Transportation – Case 2:
Nov 25 – Purchased merchandise totaling P17,000 FOB shipping point, Freight collect P1,900;
terms 2/10, n/30
Journal Entry:
Purchases 17,000
Transportation In 1,900
Cash 1,900
COLLEGE OF COMMERCE
Payment with Purchase Discount: Dec 5 – Paid the account in full

Journal Entry:
Cash 16,660
NOTE: The DISCOUNT is applied on the TOTAL PAYABLES.

Nov 25 – Sold merchandise totaling P17,000 FOB Destination, Freight collect P1,900; terms
2/10, n/30
Journal Entry:
Purchases 17,000
Cash 1,900

Journal Entry:
Cash 14,760
Transportation Case 4:
Nov 25 – Purchased merchandise totaling P17,000 FOB Shipping Point, Freight prepaid P1,900;
terms 2/10, n/30
Journal Entry:
Purchases 17,000

Journal Entry:
Cash 18,560
NOTE: The DISCOUNT is still applied on the TOTAL Purchases not on the balance of the
Accounts Payable EVEN IF THE PAYABLE BALANCE HAS BEEN INCREASED BY THE
FREIGHT CHARGES PAID BY THE BUYER. FREIGHT CHARGES IS ADDED TO THE
PAYABLE.
COLLEGE OF COMMERCE
EXERCISE ON THE COMPARATIVE JOURNAL ENTRIES FOR PERIODIC AND

PERPETUAL INVENTORY SYSTEMS
Assume that the beginning inventory for the year is P250,000. If the transactions (1-7) were the
only transactions for the entire year, the balance in the inventory account at year-end under the
period inventory system is P250,000 (beginning inventory). The year-end balance in the
inventory account under the perpetual inventory system is P231,860.
At year-end, the physical inventory is taken, and it revealed that the actual inventory on hand is
P231.500.
Transaction No. 1 – Sold merchandise on account costing P8,000 for P10,000; terms 2/10, n/30
Periodic System
Sales 10,000
Perpetual System
Sales 10,000
Cost of Sales 8,000

Inventory 8,000
Transaction No. 2 – Customer returned merchandise costing P400 that had been sold on
account for P500 (part of the P10,000 sale)
Periodic System
Sales Returns 500
Perpetual System
Sales Returns 500
Inventory 400
Cost of Sales 400
Transaction No. 3 – Received payment from customer for merchandise sold above cash
discount taken:
(P10,000 sale – 500 return) x 2% discount = 190)
Periodic System
Cash 9,310
Sales Discount 190
COLLEGE OF COMMERCE
Perpetual System
Cash 9,310
Sales Discount 190
Transaction No. 4 – Purchased merchandise on account for resale for P6,000; terms were 2/10,
n/30 (purchase is recorded at invoice price)
Periodic System
Purchases 6,000
Perpetual System
Inventory 6,000
Transaction No. 5 – Paid freight on the P6,000 purchase; terms were FOB Shipping point, freight
collect
Periodic System
Transportation In 200
Cash 200
Perpetual System
Inventory 200
Cash 200
Transaction No. 6 - Returned merchandise costing P300 (part of the P6,000 purchase)
Periodic System
Accounts Payable 300
Purchase Returns 300
Perpetual System
Accounts Payable 300
Inventory 300
COLLEGE OF COMMERCE
Transaction No. 7 – Paid for merchandise purchased (refer to transaction 4) cash discount taken
(6,000 Purchase – 300 Return) x 2% Discount = P114
Periodic System
Cash 5,586
Perpetual System
Cash 5,586
Inventory 114
Closing Entry 1 – To transfer the beginning inventory balance to the Income Summary Account
(part of closing entry under the periodic system)
Periodic System
Income Summary 250,000
Inventory 250,000
Perpetual System
No entry required
Closing Entry 2 – To record the ending inventory balance (part of closing entries under the
periodic system
Periodic System
Inventory 231,500
Income Summary 231,500
Perpetual System
No entry required
Closing Entry 1 – To adjust the ending inventory balance for the shrinkage during the year
Periodic System
No entry anymore since this has already been considered when the physical count was
undertaken and when the ending inventory was recorded
Perpetual System
Cost of Sales 360
Inventory 360
Ending Inventory per book 231,860

Physical count balance 231,500
Shrinkage or Loss 360
COLLEGE OF COMMERCE
Points to remember:
➢ Sales Discount is based on “Net Sales” = Sales Minus Sales Returns
➢ Sales returns are generally acknowledged by sellers by issuing a Credit Memoradum in
favor of the buyer/customer
➢ Ensure to track or follow the flow of transactions to determine whether a sales return is
applicable as a deduction from sales for computing the sales discount.
➢ Transportation Out – FOB Destination; Seller; Part of Selling Expense
➢ Transportation In – FOB Shipping Point; Buyer; Part of Net Cost of Purchases & Cost of
Goods Sold
➢ Transportation or Freight Charges must be recorded at point of sale or purchase if silent.
➢ Track the transactions to determine freight charges
➢ Payment for transportation is depending on freight terms i.e. collect or prepaid; if silent,
accounts payable; payable to the carrier
Aliling, Leonardo E. (2013). Fundamentals of Basic

Accounting. Quezon City: Rex Printing Company,
Inc.
Ballada, Win Lu, Susan Ballada. (2019). Basic

Financial Accounting & Reporting.Manila: Made Easy
Printed Learning Resources & Domdane Publisher.
Ballada, Win Lu, Susan Ballada. (2017).

Fundamentals of Accountancy. Manila: Made Easy &
Domdane Publisher.
https://www.youtube.com/watch?v=SARq3mfhS_k
https://www.youtube.com/watch?v=1TuMuEp7edM
Web and Other Learning Resources
https://www.youtube.com/watch?v=ynoYyDvg7rI
https://www.youtube.com/watch?v=60WsB9fvjnY
COLLEGE OF COMMERCE
Exercise 6-1.
On June 1, 2018, Eleno Buray Jr. Forest Products sold merchandise with a P120,000
list price.
For each of the sales terms, determine the following:
1. The amount recorded as sale
2. The amount of cash received
Trade Credit Date

Discount Terms Paid
a. 30% 2/10, n/30 June 8
b. 40% 1/10, n/30 June 15
c. - 2/10, n/30 June 11
d. 20% 1/15, n/30 June 14
e. 40% 1/15, n/30 June 28
Exercise 6-2.
On May 15, 2018, the Guzon Book Distributors acquired for resale books on account with
a list price of P108,000. Butuan Publishing, the supplier, allowed a 15% trade discount as
well as credit terms of 2/10, n/30. Guzon paid the invoice in full on May 20, 2018.
Prepare the journal entries for Guzon Book Distributors.
COLLEGE OF COMMERCE
Exercise 6-3. Some of the sales transactions of Jefferson Triguero Distributors whose
credit terms are 2/10, n/30 follow:
June 01 Cash sales, P180,000
June 04 Sales on account, P650,000
June 07 Received returned merchandise sold on account, P90,000
June 10 Collected the amount due from credit sales.
Required: Prepare the journal entries.
Exercise 6-4. The following information pertains to the Leopoldo Valdez School Chairs:
Merchandise Inventory, 1/1/2020 1,200,000
Merchandise Inventory, 12/31/2020 1,900,000
Purchases 4,300,000
Purchase Returns & Allowances 129,000
Purchase Discounts 215,000
Required: Prepare in good form the cost of goods sold section of the income statement
for the year ended December 31, 2020.
Exercise 6-5. On Feb. 18, 2020, a fire destroyed the merchandise inventory of Cristina
Santiago Shirts. The following information was available from the entity’s accounting
office:
Cost of Goods Sold 1,260,000
Merchandise Inventory, 1/1/2018 300,000
Purchases 1,320,000
Purchase Returns & Allowances 46,200
Purchase Discounts 26,400
Required: Compute the value of the lost merchandise.
COLLEGE OF COMMERCE
Exercise 6-6. Prepare the journal entries for the following transactions.
Aug. 1 Sold merchandise to Villeta Trading on credit, terms n/30, FOB shipping point,
P21,000.
3 Purchased merchandise from Soya Stores, terms 2/10 n/30, FOB shipping
point, P38,000.
5 Paid Banner Freight for freight charges on merchandise received, P290.
6 Purchased store supplies on credit from Ruiz Supplies, terms n/20, P6,360.
8 Purchased merchandise on credit from Dalman Company, terms n/30, FOB

shipping point, P36,000. Freight cost of P600 was paid by Dalman.
9 Returned some of the merchandise received on Aug. 3 for credit, P6,000.
10 Sold merchandise on credit to Colonia Stores, terms 2/10 n/30, FOB shipping
point, P12,000.
16 Returned some of the store supplies purchased on Aug.6 because defective

items were sent, P2,000.
17 Sold merchandise for cash, P10,000.
18 Accepted for full credit a return from Villeta Trading, P2,000.
19 Received cash from Colonia Stores for the purchase on Aug. 10.
24 Paid Soya Stores for the balance from the transactions on Aug. 3 and 9.
25 Received full payment from Villeta Trading.
COLLEGE OF COMMERCE
Exercise 6-7. Compute the net sales, cost of goods sold and gross profit for the following
information provided by Valdez Company on December 31,2020.
Sales ₱ 301,000
Sales Returns & Allowances 16,000
Sales Discounts 9,000
Purchases 91,300
Purchases Returns and
Allowances 2,000
Purchases Discounts 3,000
Merchandise Inventory,
01/01/2020 19,450
Merchandise Inventory,
12/31/2020 21,870
Exercise 6-8.
Renz Aguhob Fireworks engaged in the following purchase transactions during the
month. The entity observes the policy that all returns are made one day after the goods are
received, and that all purchases are paid within the discount period.
Required: Using the table below, compute the (a) Invoice Price and (b) Cash paid by the
buyer for each item.
Item List Freight Credit Trade

FOB Terms Purchase
No. Price Charges Terms Discount
Returns
Shipping Point 2/10, n/30 30%
1 224,000 4,000 21,000
Destination 1/10, n/30 20%
2 126,000 9,000
Shipping Point 2/10, n/30
3 90,000 2,000 7,000
Shipping Point n/30 25%
4 41,000 1,000 9,000
Destination 3/10, n/30 20%
5 357,000 14,000 24,000
COLLEGE OF COMMERCE
Exercise 6-9.Replace the lettered blanks with the appropriate amounts.
1 2 3 4 5
Net Sales a d 250,000 290,000 400,000
Merchandise Inventory, 1/1/2018 b 50,000 70,000 j 120,000
Net Cost of Purchases 80,000 e g 160,000 390,000
Goods Available for Sale 110,000 160,000 h k m
Merchandise Inventory, 12/31/2018 40,000 f 30,000 70,000 n
Cost of Goods Sold c 140,000 230,000 l 380,000
Gross Profit 50,000 40,000 i 160,000 -
REFERENCES:
Aliling, Leonardo E. (2013). Fundamentals of basic

accounting. Quezon City: Rex Printing Company, Inc.
Ballada, Win Lu, Susan Ballada (2019). Basic

financial accounting & reporting. Manila, Philippines:
Made Easy & Domdane Publisher.
Cabrera, Ma. Elenita B., Cabrera, Gilbert Anthony B.

(2019) Financial accounting and reporting
fundamentals.. Manila, Philippines: GIC Enterprises
& Co., Inc.
Cabrera, Ma. Elenita B. (2018). Financial accounting

and reporting -comprehensive edition.
Printed Learning Resources
Manila, Philippines: GIC Enterprises & Co. Inc.
Mroczkwowski, Nicholas, David Flanders. (2015).

Accounting basic reports. 10th ed. Australia: Cengage
Learning Australia.
Valix, Conrado T., Christian Aris M. Valix. (2017).

Theory of accounts. Manila, Philippines: GIC
Enterprises & Co.
Weygandt, Jerry J., Paul D. Kimmek Donald E.

Kieso. (2016) Accounting principles. International
Student Version. 12th ed. Hoboken, NJ: John Wiley &
Sons.
COLLEGE OF COMMERCE
Wild, John, et al. (2015) Principles of accounting.

International edition. New York: Mc Graw Hill.
Merchandising Operations. Retrieved from

https://www.youtube.com/watch?v=SARq3mfhS_k
https://www.youtube.com/watch?v=1TuMuEp7edM
Web and Other Learning Resources https://www.youtube.com/watch?v=ynoYyDvg7rI
https://www.youtube.com/watch?v=60WsB9fvjnY

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COLLEGE OF COMMERCE

Welcome to Module 6 – MERCHANDISING OPERATIONS

MODULE 6 LEARNING OBJECTIVES:

COURSE CONTENT FOR MODULE 6:

Comparison of Income Statements

Income Statement Income Statement

Gloria Detoya Traders

Net Sales ₱2,393,250.00

OPERATING CYCLE FOR A MERCHANDISING BUSINESS

SOURCE DOCUMENTS FOR A MERCHANDISING BUSINESS

2. Bill of Lading - issued by carrier – trucking, shipping, airline

7. Purchase Requisition – a written request to the purchaser or purchasing officer of the

9. Receiving Report - a document containing information about goods received from a

List Price (P2,500 x 7) 17,500.00

Cash Discount of 2% on P150,000 3,000.00

1. Free on Board (FOB) Shipping Point

2. Free on Board (FOB) Destination

Who SHOULDERS the Who PAYS the

6. Transportation Out (Debit)

1. PERIODIC SYSTEM is primarily used by businesses that sell relatively inexpensive

✓ Inventory Account is used to record Purchases

SAMPLE TRANSACTIONS AND JOURNAL ENTRIES FOR SALES USING PERIODIC

Sale of merchandise in cash for P25,000

Sale of merchandise on account for P25,000

Sales on Account with discount terms

Sales Discount: Sept 30 - Received payment from sale on account of Sept 20

Sales Return: October 01 – Returned merchandise sold on Sept 20 P760

Transportation Out – Case 1:

Transportation Out – Case 2:

Collection with Sales Discount

Transportation Out – Case 3:

Collection with Sales Discount

Transportation Out – Case 4:

Collection with Sales Discount

SAMPLE TRANSACTIONS AND JOURNAL ENTRIES FOR PURCHASES USING PERIODIC

Purchase Returns: Nov 14 – Returned merchandise purchased P2,000

Payment of Purchase on Account with Discount terms

Payment with Discount: Dec 5 – Paid the account in full

Payment with Purchase Discount: Dec 5 – Paid the account in full

NOTE: The DISCOUNT is applied on the TOTAL PAYABLES.

Transportation Out – Case 3:

Payment with Purchase Discount: Dec 5 – Paid the account in full

Payment with Purchase Discount: Dec 5 – Paid the account in full

EXERCISE ON THE COMPARATIVE JOURNAL ENTRIES FOR PERIODIC AND

Cost of Sales 8,000

Ending Inventory per book 231,860

Aliling, Leonardo E. (2013). Fundamentals of Basic

Ballada, Win Lu, Susan Ballada. (2019). Basic

Ballada, Win Lu, Susan Ballada. (2017).

Trade Credit Date

a. 30% 2/10, n/30 June 8

b. 40% 1/10, n/30 June 15

c. - 2/10, n/30 June 11

d. 20% 1/15, n/30 June 14

e. 40% 1/15, n/30 June 28

Required: Compute the value of the lost merchandise.

5 Paid Banner Freight for freight charges on merchandise received, P290.

8 Purchased merchandise on credit from Dalman Company, terms n/30, FOB

9 Returned some of the merchandise received on Aug. 3 for credit, P6,000.