Module 5 – Merchandising Operations

Lesson 1
Merchandising Business Basics and Preparation of Journal
Entries

EXTEND

Name: _________________________________________ Time: _____________________

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. (1pt each)

Date of Freight Purchases Date of

Purchase List Price FOB Terms Charges Returns and Credit Terms Trade Discount Payment
Allowances
1 Dec. 1 250,000 Shipping Pt 4,000 21,000 2/10,n/30 25% Dec. 11
2 Dec. 5 150,000 Destination 9,000 - 1/10,n/30 15% Dec. 16
3 Dec. 12 100,000 Shipping Pt 2,000 7,000 2/10,n/30 5% Dec. 15
4 Dec. 15 50,000 Shipping Pt 1,000 9,000 n/30 20% Dec. 23

Required: Using the table above, calculate the amount of the; (a)trade
discount, (b) cash discount, (c) invoice price, and the (d) payable to the
seller.

Amount 1 2 3 4 5
a Trade Discount
b Invoice Price
c Cash Discount
d Amount Payable

EVALUATE

Name: _________________________________________ Time: _____________________

I. Essay. (5pts each)

A. Describe merchandising activities.

B. Explain the operating cycle of a merchandising entity (cash sales and
sales on account).
C. Explain the differences between periodic and perpetual inventory
systems.
D. Is there really a need for a physical count under the periodic inventory
system? Why?

1
II. Problem Solving.

On January 12, Nelson Daganta bought merchandise from Jahara Ibrahim on

credit, P100,000. Term: 2/10,n/30. P20,000 cost of merchandise was later
returned. The credit memo was dated January 15. Payment date was January
20. Required: Journalize the above transactions.

Journal Entries if both parties are NonVAT registered businesses:

BOOK OF NELSON DAGANTA BOOK OF JAHARA IBRAHIM

Jan. 12 Jan. 12

Jan. 15 Jan. 15

Jan. 20 Jan. 20

Journal Entries if both parties are VAT registered businesses:

BOOK OF NELSON DAGANTA BOOK OF JAHARA IBRAHIM

Jan. 12 Jan. 12

Jan. 15 Jan. 15

Jan. 20 Jan. 20

2
Post-Assessment
Name: _________________________________________ Time: _____________________

Ramos Distributors and Cammayo Retailers engaged in the following

transactions during the month of May. Assume both are NonVAT registered.

May 4 Ramos sold merchandise on account to Cammayo, P162,000. Terms:

FOB destination; 2/10,n/30. Freight charges amounted to
P2,000. Cost price is 60% of sales price.
5 Ramos sold merchandise on account to Cammayo, P710,000. Terms:
FOB shipping point; 2/10,n/30. Freight charges amounted to
P8,000. Cost price is P426,000.
6 Cammayo paid freight charges on the purchase on May 5.
7 Ramos received returned merchandise from Cammayo in the amount
Of P12,000 from the May 4 sale.
9 Ramos received payment from Cammayo for the May 4 transaction
Less returns and discounts.
10 Ramos paid the transportation charges on the May 4 shipment.
12 Ramos received payment from Cammayo for the May 5 transaction.
18 Ramos sold merchandise on account to Cammayo, P250,000. Terms:
40% trade discount; FOB shipping point; 2/10,n/30. Cost price
is P90,000.
21 Cammayo paid freight charges on the May 18 transaction, P3,000.
23 Ramos received payment from Cammayo for the amount due from
The transaction on May 18.

3
Required: Prepare journal entries on the books of Ramos Distributors and Cammayo Retailers using the (1) periodic
inventory system and the (2) perpetual inventory system. Use the form below to answer. (1pt each)

PERIODIC INVENTORY SYSTEM

Books of Ramos Distributors (SELLER) Books of Cammayo Retailers (BUYER)

May 4 May 4

5 5

6 6

7 7

9 9

10 10

12 12

18 18

21 21

23 23

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 PERPETUAL INVENTORY SYSTEM
Books of Ramos Distributors (SELLER) Books of Cammayo Retailers (BUYER)

May 4 May 4

5 5

6 6

7 7

9 9

10 10

12 12

18 18

21 21

23 23

5
 Lesson 2
Completing the Cycle for Merchandising Business

EXTEND

Name: _________________________________________ Time: _____________________

Case 1. Prepare a worksheet under periodic inventory system:

John Bala Maps

Unadjusted Trial Balance
For the Year Ended December 31, 2018

Cash 31,000
Accounts Receivable 83,000
Merchandise Inventory 627,000
Prepaid Insurance 54,000
Office Supplies 68,000
Office Equipment 370,000
Accumulated Depreciation 50,000
Accounts Payable 58,000
Bala, Capital 517,000
Bala, Withdrawals 87,000
Sales 2,675,000
Sales Returns and Allowance 26,000
Sales Discounts 23,000
Purchases 1,512,000
Purchases Returns and Allowances 14,000
Purchases Discounts 19,000

Additional information:
a. Merchandise inventory as t December 31, 2018 amounted to P532,000.
b. Insurance coverage with premiums of P18,000 has expired during the year.
c. Depreciation for the year amounted to P25,000.
d. Office supplies remaining at year-end amounted to P15,000.
e. Salaries in the amount of P9,000 have accrued as at December 31, 2018.

Case 2. Prepare a worksheet under perpetual inventory system:

6
 John Bala Maps
Unadjusted Trial Balance
For the Year Ended December 31, 2018

Cash 31,000
Accounts Receivable 83,000
Merchandise Inventory 532,000
Prepaid Insurance 54,000
Office Supplies 68,000
Office Equipment 370,000
Accumulated Depreciation 50,000
Accounts Payable 58,000
Bala, Capital 517,000
Bala, Withdrawals 87,000
Sales 2,675,000
Sales Returns and Allowance 26,000
Sales Discounts 23,000
Cost of Sales 1,612,000
Salaries Expense 327,000
Advertising Expense 61,000
Rent Expense 26,000
Totals 3,300,000 3,300,000

Additional information:
a. Insurance coverage with premiums of P18,000 has expired during the
year.
b. Depreciation for the year amounted to P25,000.
c. Office supplies remaining at year-end amounted to P15,000.
d. Salaries in the amount of P9,000 have accrued as at December 31,
2018.

7
 Case 1. Solution Sheet.

John Bala Maps

Worksheet
For the Year Ended December 31, 2018
Statement of Financial
Trial Balance Adjustments Statement of Income
Account Titles Position
Debit Credit Debit Credit Debit Credit Debit Credit
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Insurance
Office Supplies
Office Equipment
Accumulated Depreciation
Accounts Payable
Bala, Capital
Bala, Withdrawals
Income Summary
Sales
Sales Returns and Allowance
Sales Discounts
Purchases
Purchases Returns and Allowances
Purchases Discounts
Transportation In
Salaries Expense
Advertising Expense
Rent Expense
Totals

8
Case 2. Solution Sheet.

John Bala Maps

Worksheet
For the Year Ended December 31, 2018
Statement of Financial
Trial Balance Adjustments Statement of Income
Account Titles Position
Debit Credit Debit Credit Debit Credit Debit Credit
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Insurance
Office Supplies
Office Equipment
Accumulated Depreciation
Accounts Payable
Bala, Capital
Bala, Withdrawals
Income Summary
Sales
Sales Returns and Allowance
Sales Discounts
Cost of Sales
Salaries Expense
Advertising Expense
Rent Expense
Totals

9
EVALUATE

Name: _________________________________________ Time: _____________________

Essay.

1. Show the pro-forma entries for merchandise inventory using:

f. The adjusting entry method; and

Page 1

Date Account titles and Explanation P .R. Debit Credit

1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15

g. The closing entry method.

2. Discuss the importance the following financial statements:

a. Statement of Income

____________________________________________________________________
____________________________________________________________________
____________________________________________________________________

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 b. Statement of Changes in Equity

____________________________________________________________________
____________________________________________________________________
____________________________________________________________________

c. Statement of Financial Position

____________________________________________________________________
____________________________________________________________________
____________________________________________________________________

d. Statement of Cash Flows

____________________________________________________________________
____________________________________________________________________
____________________________________________________________________

3. Differentiate the preparation of the Statement of Income using the

Nature of Expense Method and the Function of Expense Method.

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

4. Why temporary accounts are closed at end of an accounting period?

Explain.

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

5. Are the preparation of a post-closing trial balance and reversing

entries necessary to be prepared at the end of an accounting period?
Explain.

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

11
Post-Assessment
Name: _________________________________________ Time: _____________________

The ledger accounts of the Christine Sousa Bags for the year ended December
31, 2018 are as follows:

Accu. Depreciation-Off. Bldg. 100,000 Notes Payable due in 2 yrs 200,000

Accu. Depreciation-Off. Equipt. 150,000 Office Building 1,600,000
Accounts Receivable 136,000 Office Equipment 570,000
Accounts Payable 74,000 Office Supplies 42,000
Cash 72,000 Prepaid Advertising 75,000
Transportation In 72,000 Purchases Discounts 172,000
Insurance Expense 25,000 Purchases Returns And Allowances 133,000
Interest Expense 208,000 Purchases 2,643,000
Sousa, Capital 1,510,000 Salaries Expense 862,000
Sousa, Withdrawals 200,000 Sales Discounts 161,000
Land 400,000 Sales Returns and Allowances 187,000
Merchandise Inventory 598,000 Sales 4,600,000
Mortgage Payable 1,100,000 Travel Expense 188,000

Additional information:

a. Office supplies consumed during the year amounted to P17,000.

b. Advertising expense in the amount of P25,000 has expired during the
year.
c. Salaries of P21,000 have accrued as at December 31, 2018.
d. Depreciation on the office building and on the office equipment amounted
to P15,000 and P20,000, respectively.
e. The December 31, 2018 ending inventory is P723,000.

Required:

1. Prepare the worksheet

2. Prepare the following financial statements:
a. Statement of Income using the function of expense method
b. Statement of Changes in Equity
c. Statement of Financial Position using the report format
3. Prepare the adjusting journal entries
4. Prepare the closing journal entries using the adjusting entry method
5. Prepare the post-closing trial balance
6. Prepare the reversing entries

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1. Worksheet.

13
2a. Statement of Income

2b. Statement of Changes in Equity

14
2c. Statement of Financial Position

15
3. Adjusting Journal Entries

16
4. Closing Journal Entries

17
5. Post-Closing Trial Balance

18
6. Reversing Journal Entries
Page 1

Date Account titles and Explanation P .R. Debit Credit

1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15

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 Lesson 3
Special and Combination Journals and Voucher System

EXTEND

Name: _________________________________________ Time: _____________________

Olson Sala Company completed the following sales transactions during the
month of June 2018. All credit sales have terms of 3/10,n/30 and all
invoices are dated as at the transaction date.

June 1 Olson Sala invested P52,000 of his funds in the bsuiness.

1 Sold merchandise on account to R. Bituin, P32,000. Invoice no. 377.
3 Sold merchandise on account to A. Perdales, P54,000. Invoice no. 378.
4 Sold P46,000 of merchandise for cash.
7 Received payment from R. Bituin less discounts.
9 Received payment from A. Perdales less discounts.
13 Sold merchandise to B. Ceballus on account, P62,000. Invoice no. 379.
15 Borrowed P30,000 from the Monte de Santa Cruz Bank by issuing a 10%
note payable due in 3 months.

15 B. Ceballus returned P11,000 of merchandise from the June 13 sale.

16 Sold merchandise to A. Ramel on account, P17,000. Invoice no. 380.
21 Colleted amount due from B. Ceballus less returns and discounts.
29 Received P6,000 from A. Ramel.

Required:
1. Record the transactions in the appropriate journals. Use the forms
below.
2. Total the sales and cash receipts journals.
3. Using the following account numbers and journal page numbers, post to
the general and accounts receivable ledgers and subsidiary ledgers:

Account No. Journal Page No.

Cash 110 Sales 16
Accounts Receivable 120 Cash Receipts 35
Notes Payable 210 General 13
Sala, Capital 310
Sales 410
Sales Returns and Allowances 420

4. Post the transactions to its respective subsidiary ledgers.

5. Prepare a schedule of accounts receivable.

20
 1-2. SPECIAL JOURNALS

SALES JOURNAL Page 16

Invoice Post. Dr-Accounts Receivable/
Date Account Debited
No. Ref. Cr-Sales
2018
June

5
Total

CASH RECEIPTS JOURNAL Page 35

O.R. Debits Credits
Date No. Decription Sales Accounts
Cash Sales Account Title PR Amount
Dicounts Receivable
2018
June

(110) (430) (120) (410)

3. POSTING TO GENERAL LEDGER AND ACCOUNTS RECEIVABLE LEDGERS AND SUBSIDIARY

LEDGERS

GENERAL JOURNAL Page 13

DATE ACCOUNT TILES AND EXPLANATION P. R. DEBIT CREDIT

21
 Date Particulars P . R. Debit Credit Balance
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
22 22
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
31 31
32 32
33 33
34 34
35 35
36 36
37 37
38 38
39 39
40 40
41 41
42 42
43 43
44 44
45 45
46 46
47 47
48 48
49 49
50 50
51 51
52 52
53 53
54 54
55 55
56 56
57 57
58 58
59 59
60 60
61 61

22
 Date Particulars P . R. Debit Credit Balance
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
22 22
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
31 31
32 32
33 33
34 34
35 35
36 36
37 37
38 38
39 39
40 40
41 41
42 42
43 43
44 44
45 45
46 46
47 47
48 48
49 49
50 50
51 51
52 52
53 53
54 54
55 55
56 56
57 57
58 58
59 59
60 60
61 61

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4. SCHEDULE OF ACCOUNTS RECEIVABLE

Page 1

Date Account titles and Explanation P .R. Debit Credit

1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18

EVALUATE

Name: _________________________________________ Time: _____________________

CASE 1: Lumen Almachar operates a neighbourhood pharmacy in front of the

community hospital. The books of original entry include purchases journal,
cash payments journal and general journal. A subsidiary ledger is used for
accounts payable. The following are the transactions related to purchases
and cash payments for the month of June: (Round-off amounts to the nearest
ones)

June 1 Purchased merchandise from Seco Co. on account for P23,420. Invoice no. 71
dated June 1, terms 2/10,n/30.
2 Issued check no. 536 for P10,000 in payment for rent for June.
5 Purchased merchandise from Ricarte Drug Supply on account for P56,240.
Invoice no. 72 dated June 2, terms 1/15,n/30.
7 Purchased merchandise from Casas Drug Co. on account for P36,735. Invoice
no. 73 dated June 5, terms 3/10 eom.
9 Issued check no.537 to Seco Co. in payment of invoice no. 71 less discount.
12 Received a credit memorandum from Ricarte Drug Supply for P4,620 for
merchandise returned that was purchased on June 5.
14 Purchased merchandise from Balino Drug Co. on account for P47,940. Invoice
no. 74 dated June 14, terms 2/10,n/30.
15 Received a P5,370 credit memorandum from Casas Drug Co. for merchandise
returned that was purchased on June 7.
16 Issued a check no. 538 to Ricarte Drug Supply in payment of invoice no. 72

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 23 Issued check no. 539 to Balino Drug Co. in payment of invoice no. 74 less
2% discount.
27 Purchased merchandise from Abeto Pharmaceuticals on account for P63,847.
Invoice No. 75 dated June 27, terms 2/10 eom.
30 Issued check no. 540 for P27,020 to Tudtud Co. for a rush purchase of

Required:
1. Record the transactions in the purchases (page 7), cash payments
(page 7) and general journals (page 7).

2. Enter the totals and rule the purchases and cash payments journals.
Post from the journals to the general ledger accounts and accounts
payable subsidiary ledgers. Use the following accounts: Cash (110),
P918,000; Accounts Payable (210), P621,769; Purchases (510),
P1,382,625; Purchases Returns and Allowances (520), P31,623;
Purchases Discounts (530), P21,145 and Rent Expense (620), P50,000.

3. Prepare a schedule of accounts payable. Show that the total accounts

payable in the schedule equals the difference between June 1 and June
30 Balances of Accounts Payable in the general ledger.

PURCHASES JOURNAL Page 7

R.R. Credits Debits
Date No. Amount Credited P.R. Accounts Office Store Other Accounts
Purchases
Payable Supplies Supplies Account Title PR Amount
2018
June

Totals - - - - -
(210) (510) (/)

CASH DISBURSEMENTS JOURNAL Page 7

Ck. Credits Debitts
Date No. Description Purchases Accounts
Cash Purchases Account Title PR Amount
Discounts Payable
2018
June

Totals - - - - -
(110) (520) (210) (510) (/)

GENERAL JOURNAL Page 7

DATE ACCOUNT TILES AND EXPLANATION P. R. DEBIT CREDIT

25
 Date Particulars P . R. Debit Credit Balance
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
22 22
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
31 31
32 32
33 33
34 34
35 35
36 36
37 37
38 38
39 39
40 40
41 41
42 42
43 43
44 44
45 45
46 46
47 47
48 48
49 49
50 50
51 51
52 52
53 53
54 54
55 55
56 56
57 57
58 58
59 59
60 60
61 61

26
 Date Particulars P . R. Debit Credit Balance
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
22 22
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
31 31
32 32
33 33
34 34
35 35
36 36
37 37
38 38
39 39
40 40
41 41
42 42
43 43
44 44
45 45
46 46
47 47
48 48
49 49
50 50
51 51
52 52
53 53
54 54
55 55
56 56
57 57
58 58
59 59
60 60
61 61

27
 CASE 2: Ferdinand Romero Company, which employs a voucher system, had the
following transactions during the month of July 2018: (Round-off amounts to
the nearest ones)

July 1 Recorded voucher no. 701 payable to Gloria for merchandise purchased,
P9,500. Terms 2/10,n/30.
2 Recorded voucher no. 702 payable to Reyes Rentals for July rent, P7,250.
3 Issued check no. 803 in payment of voucher no. 702.
9 Recorded voucher no. 703 payable to Tanupan Express, Inc. for freight,
P520. Terms: F.O.B. shipping point.
10 Issued check no. 804 in payment of voucher no. 701 less discounts.
11 Issued check no. 805 in payment of voucher no. 703.
15 Recorded voucher no. 704 payable to Pechon Company for P8,000 merchandise;
terms 2/10,n/30.
20 Received credit memo from Pechon Company for P2,000 merchandise recorded
in voucher no. 704. Cancelled voucher no. 704 and issued voucher no. 705.
24 Recorded voucher no. 706 payable to Jerusalem Company for P12,500
merchandise; terms 2/10,n/30.

Required: Prepare the voucher and check register, and record the
transactions for Ferdinand Romero Company. (use the form below)

VOUCHER REGISTER
Credits Debits
Voucher Date Other Accounts
Payee Accounts Trans. Office Trans.
Purchases
No. Date Paid Ck. No. Payable In Supplies Out Account Title PR Debit Credit

Totals - - - - - - -
(320) (550) (560) (160) (680) (/) (/)

CHECK REGISTER
Debits Credits
CHECK Voucher
Payee Accounts Purchases Cash in
No. Date No. Payable Discounts Bank

Totals - - -
(320) (570) (110)

28
Post-Assessment
Name: _________________________________________ Time: _____________________

Listed below are account titles used in the discussions from Module 1 to 5,
identify the classification of the account either an asset, liability,
capital, income or expense account and determine its normal balance either
debit or credit on the appropriate column provided for you to answer:

Account Classification Normal

Account Titles (Asset/Liability/Capital/ Balance
Income/Expense (Debit/Credit)
1 Accounts Payable
2 Accounts Receivable
3 Accrued Interest Income
4 Accrued Salaries Expense
5 Accumulated Depreciation
6 Allowance for Uncollectible Accounts
7 Biological Assets
8 Bonds Payable
9 Building
10 Cash
11 Cash Equivalents
12 Communication Expense
13 Cost of Sales
14 Depreciation
15 Furniture and Fixtures
16 Input VAT
17 Insurance Expense
18 Intangible Assets
19 Interest Income
20 Interest Income
21 Interest Receivable
22 Land
23 Leasehold Improvements
24 Machineries
25 Merchandise Inventory
26 Mortgage Payable
27 Notes Payable
28 Notes Receivable
29 Office Equipment
30 Office Supplies
31 Office Supplies Expense
32 Output VAT
33 Prepaid Insurance
34 Prepaid Rent
35 Purchases
36 Purchases Discounts
37 Purchases Returns and Allowances
38 Rent Expense
39 Repairs and Maintenance
40 Representation and Entertainment
41 Salaries and Wages
42 Salaries Payable
43 Sales
44 Sales Discounts
45 Sales Returns and Allowances
46 Service Income
47 Taxes and Licenses
48 Tranportation Out
49 Transportation and Travel
50 Transportation In
51 Uncollectible Accounts
52 Unearned Interest Income
53 Unused Office Supplies

29