ACCTG 11-1

Fundamentals of Accounting

GBS FOR WEEK NO. 11

Period Covered: ____________________________

SCHOOL YEAR _________________ | ________ Semester

OBJECTIVES:
After working in this material, the learner is expected to:

To know the account titles used when recording the transactions of a merchandising
business.
To know how to record the transactions of a merchandising business.
To acquire knowledge regarding the two methods for recording purchases of merchandise.

CORE LESSON CONTENTS:

RECORDING THE PURCHASE OF MERCHANDISE
There are two methods for recording purchases of merchandise.
1.

Periodic Inventory Method

Under this method, every time a purchase of merchandise is made, an account Purchases is
debited. When a sale is made a revenue account Sales is credited. At the end of accounting period, a
physical count of the goods unsold (called Merchandise Inventory) will be made. This will be
subtracted from the purchases to arrive at the Cost of Goods Sold. The ending merchandise inventory
will be carried forward to the next accounting period and will become the beginning merchandise
inventory. This method is normally employed by a merchandising business.

2.

Perpetual Inventory Method

Under this method an asset account Merchandise is debited to record the purchase. When a
sale is made, two entries are required, first is to recognize the revenue account called Sales and the
second to debit the Cost of Goods Sold with a corresponding credit to Merchandise. In this manner,
the merchandise account will have a running balance and as such, there is no need to make a physical
count just to determine the balance. If ever a physical count is made, it is only for purposes of
checking whether the balance as per the physical count tallies with the balance as per the ledger. This
method is normally employed by a manufacturing business.
Note: In this book only the Periodic Inventory Method is used. The Perpetual Inventory Method is taken up
in cost accounting subject.

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Recording Purchase of Merchandise and Related Transactions

Transactions
1. Purchases of
merchandise

DEBIT
(Value Received or Paid For)
Purchases
(merchandise)

2. Purchase of
returns
3. Payment of
Freight
4. Payment without
discount
5. Payment with
discount

Cash (if bought for cash) or

Accounts Payable (if on credit)
Freight In
(value paid for)
Accounts Payable
(value paid for)
Accounts Payable
(value paid for)

CREDIT
(Value Parted With)
Cash (if paid) or
Accounts Payable (if on credit)
or
Notes Payable (if a note is
issued)
Purchase Returns & Allowances
(merchandise)
Cash
Cash
Cash &
Purchase Discount
(Deduction from Payment)

Example 1
Jan 1 Bought merchandise from Abby Trading, P10,000 terms 2/10,n/30.
Purchases
10,000
Accounts Payable
10,000

Cash

1 Paid freight on the above purchases, P600.

Freight In
600
600

2 Returned P2,000 worth of merchandise to Abby Trading.

Accounts Payable
2,000
Purchase Returns & Allow. 2,000

Cash

5 Made a partial payment to Abby Trading, P 3,000.

Accounts Payable
3,000
3,000

11 Paid Abby Trading in full.

Accounts Payable
5000
Purchased Discount
160
4840

Cash

Note: The cash discount should be based on the net Purchases and not on the balance of the
Accounts Payable.
Jan 14 Bought merchandise from Barbi Trading with a list price of P 10,000 terms
COD with trade discount of 10%.

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Purchases (90% x 10,000)

9,000

Cash

9,000
15 Bought merchandise from Corvex Trading with a list price of P 20,000 terms
2/10, n/30 with trade discounts of 10% and 5%.
Purchases
Payable

17,100

Accounts

17,100

Note: Trade discount is not recorded. It is immediately deducted from the purchase cost.

It should be emphasized that the accounts Purchases, Freight In, Purchase Returns
and Allowances, and Purchase Discount are applicable only to merchandise.
Example 2
Jan 7 Bought tables and chairs from Nicfur, P 40,000 terms 2/10,n/30.
Furniture and Fixtures
Accounts Payable

40,000
40,000

7 Paid freight on the above purchase, P 2,000.

Furniture and Fixtures
Cash
2,000

2,000

8 Returned P 3,000 worth of defective tables.

Accounts Payable
3,000
Furniture and Fixtures
3,000
10 Made a partial payment to Nicfur, P 20,000.
Accounts Payable
20,000
Cash
20,000
17 Paid Nicfur in full.
Accounts Payable
Furniture and Fixtures
Cash

17,000
740
16260

Note: The account Furniture & Fixtures is used for the freight, returns, and discount.

TOPIC INDEXES AND KEYWORDS (TIK):

______________________
_______________________

TANGENT ADDITIONAL KEYWORDS (TAK):

______________________________
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EVALUATION (OUTCOME): ]
Assignment for week 10 & 11
ASSIGNMENTS FOR ACCOUNTING FOR MERCHANDISING OPERATIONS
Ashly Distributors completed the following merchandising transactions for the month of May 2012. As of
May 1, the books of account showed cash of P50,000 and Ashly Capital of P50,000.

May 2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
29
30
31

Purchased merchandise on account from Wendy Supply Co. P10,000 terms, 2/10,n/30
Sold merchandise for P4,500 terms P500 down balance 2/10,n/30.
Paid P500 cash for freight on May 3 sales.
Received credit from Wendy for merchandise returned.P800.
Made partial payment to Wendy P5,000.
Received partial collection from customer on account date May 3 P3,000
Paid Wendys account in full.
Received collections in full from customer billed on May 3
Cash purchases of merchandise P6,800
Received refund from supplier for cash purchase of April 16 P500
Purchased merchandise from KFC Enterprise, P14,000 terms 2/10,n/30
Paid freight on May 12 purchases P700.
Sold merchandise P3,600 terms COD
Purchased merchandise for cash P2,750
Made partial payment to KFC for P6,000
Paid KFC in full
Made refunds to customers for defective goods sold, P500.
Sold merchandise on account, P12,950, terms 15% down, balance 2/5, 5/10, n/15
Purchased merchandise in cash P20,000, received trade discounts of 15,10,5.
Collected in full sales made on May 19.
Purchased merchandise on account P4,000, terms eom.
Purchased goods on account P6,000, terms 2/5, ROG
Sold merchandise on account, P20,000, terms 20% down, balance 5/eom.
Received goods purchased on the 23rd. of May.
Paid in full the purchases made on May 23.
Sold merchandise in cash P5,000.
Sold merchandise on account, P8,000, down 25%, balance, terms 1/5,2/15,5/25, n/60

Prepare the journal entries for each transaction.

Post to the ledger and prepare a trial balance.

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SECONDARY REFERENCE MATERIAL(S):

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Deadline
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Filename
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