FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS
and MANAGEMENT 1
Name: _______________________________
Grade and Section: ____________________
Module 11: Accounting Cycle for a Merchandising Business
(Part 1)
(4th Quarter, 2nd Semester)
Businesses are categorized into product-oriented firms, service-oriented firms, or a mix of both. In
this module, we will focus on product-oriented firms and understand how a merchandising business, a
company that sells products, works. In the process, new account titles and the cost of goods sold being one
will be discussed.
From this module, you will find this lesson:
Lesson 1: Nature of Transactions in a Merchandising Business
Lesson 2: Journalizing Merchandising Business Transactions
LEARNING OBJECTIVES
Upon successful completion of this module, you will be able to:
1. describe the nature of transactions in a merchandising business (DepEd-MELC, DICES); and,
2. record transactions of a merchandising business in the general and special journals. (DepEd-
MELC, DICES)
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DAY 1
Lesson No.: 1
Lesson Title: Nature of a Merchandising Business
Learning Target: The learners will be able to describe the nature of transactions in a merchandising
business. (DepEd-MELC, DICES
Values/Graduate Attribute: The learners will become a) precise, just, and fair in handling man’s
resources (money); b) meritorious individuals having the mindset of fairness and equality, c) Christ-
centered individuals focusing on how to eliminate bias and execute completeness, purposeful and decisive
individuals upon making conclusions and recommendations based on the data reported in line with; d) and
performing materiality in the whole accounting cycle.
References: Florendo, J. G. (2016). Fundamentals of Accountancy, Business and Management 1; Frias,
S. A. & Pefianco, E. C. (2016). Fundamentals of Accountancy, Business and Management: A Textbook in
Basic Accounting 1; and Teaching Guide for Senior High School
Concept Notes:
A merchandising business is an enterprise that buys and sells goods to earn a profit.
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. A merchandiser’s primary source of revenue is
sales revenue or sales.
On the other hand, expenses for a merchandising company are divided into two categories:
1. Cost of goods sold (COGS) refers to the total cost of merchandise sold during the period.
2. Operating expenses (OP) are expenses incurred in the process of earning sales revenue that are
deducted from gross profit in the income statement. Examples include sales salaries and insurance
expenses.
In addition, Gross profit (GP) is equal to Sales Revenue less the Cost of Goods Sold.
Income measurement process for a merchandiser is as follows:
OPERATING
SALES - COGS = GROSS PROFIT - = NET INCOME / NET LOSS
EXPENSES
Examples of merchandising business:
drug store hardware
grocery store school or office supplies store
Examples of merchandise:
medicines nails
canned goods paper
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DAY 2
Lesson No.: 2
Lesson Title: Journalizing Merchandising Business Transactions
Learning Target: The learners will be able to record transactions of a merchandising business in the
general and special journal. (DepEd-MELC, DICES
Values/Graduate Attribute: The learners will become precise, just, and fair in handling man’s resources
(money), meritorious individuals having the mindset of fairness and equality, Christ-centered individuals
focusing on how to eliminate bias and execute completeness, purposeful and decisive individuals upon
making conclusions and recommendations based on the data reported in line with; and performing
materiality in the whole accounting cycle.
References: Florendo, J. G. (2016). Fundamentals of Accountancy, Business and Management 1 ; Frias, S.
A. & Pefianco, E. C. (2016). Fundamentals of Accountancy, Business and Management: A Textbook in
Basic Accounting 1; and Teaching Guide for Senior High School
Concept Notes:
Maintaining inventory items is a unique set-up in a merchandising business. There are two
methods of accounting for inventory, namely:
1. Perpetual Inventory 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. This system involves:
● Recording purchase of inventory
● Recording revenue and 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 Inventory System – Cost of goods sold is determined only at the end of an accounting
period. This system involves:
● Recording purchase of inventory
● Recording revenue only when the item is sold
● At the end of the period, you must compute for the cost of goods sold (COGS).
Examples:
TRANSACTIONS PERPETUAL PERIODIC
Inventory 10,000 Purchases 10,000
Purchased merchandise worth
P10,000 and paid in cash Cash Cash 10,000
10,000
Paid P500 for the delivery fee of Inventory 500 Freight-in 500
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the purchased merchandise Cash 500 Cash 500
Returned defective merchandise
worth P2,000 Cash 2,000 Cash 2,000
Cash received upon return of Inventory 2,000 Purchase Return 2,000
merchandise
Cash 8,000 Cash 8,000
Sold P8,000 worth of Sales 8,000 Sales
merchandise 8,000
The cost of the said merchandise
was P4,000. Cost of goods sold 4,000
Inventory 4,000
Sales Returns 2,500 Sales Returns 2,500
Sales worth P2,500 was returned Cash 2,500 Cash 2,500
by the customer as wrong
products were delivered. The
cost of the returned merchandise Inventory 1,250
was P1,250.
Cost of goods sold
1,250
Purchased inventory worth Inventory 100,000 Purchases 100,000
P100,000
Accounts Payable Accounts Payable
Discount of 5% would be given 100,000 100,000
if payment was made 10 days
from the date of purchase.
Accounts Payable 100,000 Accounts Payable 100,000
Cash Cash
Payment was made in order to
95,000 95,000
avail the purchase discount.
Inventory Purchase discount
5,000 5,000
Made sales on account worth Accounts Receivable 150,000
P150,000 Sales 150,000
Accounts Receivable 150,000
Discount of 3% is available
upon payment within 15 days. Sales 150,000
The selling price was 50% above Cost of goods sold 75,000
the cost. Inventory 75,000
Cash 145,500 Cash 145,500
The customer made payment to
Sales Discount 4,500 Sales Discount 4,500
avail the sales discount.
Accounts Receivable 150,000 Accounts Receivable 150,000
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DAY 3
Time started: ______
Time finished: ______
LEARNING ACTIVITY 11.1
Activity Title: Journalizing Transactions: Periodic & Perpetual
Learning Target: The learners will be able to record transactions of a merchandising business in the
general and special journal. (DepEd-MELC, DICES
Values/Graduate Attribute: The learners will become precise, just, and fair in handling man’s resources
(money), meritorious individuals having the mindset of fairness and equality, Christ-centered individuals
focusing on how to eliminate bias and execute completeness, purposeful and decisive individuals upon
making conclusions and recommendations based on the data reported in line with; and performing
materiality in the whole accounting cycle.
Directions: On a separate paper, journalize the following transactions using the perpetual and periodic
systems.
1. Purchased goods worth P45,000, on which cash was paid immediately
2. Returned P5,000 worth of defective merchandise upon careful inspection
3. Sold merchandise on account; the cost of merchandise sold was P25,000. The selling price was
50% above cost. The credit term was 3/10.
4. Collected the customer account from the previous transaction within 10 days
5. Purchased merchandise on account worth P50,000; a 5% discount would be given if the account
paid within 15 days. The company paid the account to its supplier after 10 days.
DAY 4
Lesson No.: 2
Lesson Title: Journalizing Merchandising Business Transactions
Learning Target: The learners will be able to record transactions of a merchandising business in the
general and special journal. (DepEd-MELC, DICES
Values/Graduate Attribute: The learners will become precise, just, and fair in handling man’s resources
(money), meritorious individuals having the mindset of fairness and equality, Christ-centered individuals
5
focusing on how to eliminate bias and execute completeness, purposeful and decisive individuals upon
making conclusions and recommendations based on the data reported in line with; and performing
materiality in the whole accounting cycle.
References: Florendo, J. G. (2016). Fundamentals of Accountancy, Business and Management 1; Frias, S.
A. & Pefianco, E. C. (2016). Fundamentals of Accountancy, Business
Concept Notes:
Special journals are books of accounts used to journalize similar repetitive transactions to facilitate
efficient and practical recording. There are four (4) types of special journals:
1. Sales journal
2. Purchase journal
3. Cash receipts journal
4. Cash payments journal
Examples
● Dec 1, 2016 – Joseph General Merchandising borrowed P50,000 to his friend Michael Arcanghel
by issuing a 12% two-year promissory note to start up the business. (CASH RECEIPTS)
Debit Credit
Date Description/Particulars Ref Accounts Other
Cash Sales
Receivables Accounts
12/1/2016 Michael Arcanghel 50,000 50,000
● Dec 2, 2016 – JGM purchased merchandise on account from Francis Corporation worth P12,500
under SI 0123. (PURCHASE JOURNAL)
Invoice No. Debit Credit
Date Description/Particulars (from Ref
Supplier Purchases Accounts Payable
12/2/2016 Francis Corporation 0123 12,500 12,500
● Dec 3, 2016 – JGM sold merchandise to Anne Novelty Store worth P20,000 on account and issued
SI 001. (SALES JOURNAL)
Debit Credit
Invoice
Date Description/Particulars Ref Accounts
No. Sales
Receivables
12/3/2016 Anne Novelty Store 001 20,000 20,000
● Dec 4, 2016 – JGM purchased from Mary Trading P18,000 worth of merchandise for cash under
cash voucher no. 001. (CASH DISBURSEMENTS)
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Debit Credit
Check/Cash
Date Description/Particulars Ref Accounts Other
Voucher No. Cash
Payable Accounts
12/4/2016 001 Mary Trading 18,000 18,000
Exercise 11.1
Directions: On a separate paper, journalize the following transactions using special journals.
1. Dec 5, 2016 – Joseph withdrew P7,500 cash for personal use and used cash voucher no. 002.
2. Dec 6, 2016 – JGM sold P15,000 worth of merchandise to Joachim Store on account under SI 002.
3. Dec 7, 2016 – JGM purchased P35,000 worth of merchandise on account from Pius Corp. under
SI 0456.
4. Dec 8, 2016 – JGM received the payment of Anne Novelty Store worth P20,000.
5. Dec 9, 2016 – JGM sold merchandise to Rafael Store worth P7,500 cash.
REFLECTIVE JOURNAL
Directions: In one or two paragraphs,
summarize your learnings or insights
from this module. How can you apply
this in your daily life as an ABM
student?
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