SIM ACC 111 Financial Accounting and Reporting 1

UNIVERSITY OF MINDANAO
College of Accounting Education
Program: BSA, BSIA, BSMA, BSAIS
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
Course/Subject: ACC 111 – Financial Accounting and Reporting
Name of Teacher:__________________________________
Name of Author: DEAN ESTERLINA B. GEVERA,MBA,CPA
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR REPRODUCTION

AND DISTRIBUTION OUTSIDE OF ITS INTENDED USE. THIS IS INTENDED ONLY
FOR THE USE OF THE STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT. EXPECT REVISIONS OF THE MANUAL.
THIS IS NOT FOR COMMERCIAL USE.

3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137
TABLE OF CONTENTS
Page No.
Course Outline ii
Course Outline Policy ii
Course Information vii
Big Picture: Week 10-12 Unit Learning Outcomes 1
Big Picture in Focus: Unit Learning Outcome I & J 1
Metalanguage 1
Essential Knowledge 3
Self-Help 7
Let’s Check 7
Let’s Analyze 8
In A Nutshell 10
QA List 11
Keywords Index 11
Big Picture in Focus: Unit Learning Outcome K 12
Metalanguage 12
Self-Help 22
Let’s Check 23
Let’s Analyze 23
In A Nutshell 24
QA List 25
Keywords Index 25
Big Picture in Focus: Unit Learning Outcome L 26
Metalanguage 26
Self-Help 37
Let’s Check 37
Let’s Analyze 38
In A Nutshell 49
QA List 50
Keywords Index 50
Course Schedule 50
Online Code of Conduct 50
i
Matina, Davao City
Phone No.: (082)300-5456 Local 137
Course Outline : ACC 123– Cost Accounting and Control
Course Coordinator: Esterlina B. Gevera,MBA,CPA

Email: Esterlina_gevera@umindanao.edu.ph
Student Consultation: By BlackBoard LMS Message
Mobile:
Phone: (082) 3050645 loc. 137
Effectivity Date: August 17, 2020 (1st term/1st sem)
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: ACC 111 Financial Accounting and Reporting
Credit: 6
Attendance Requirements: A minimum of 95% attendance is required at all scheduled
virtual or face to face sessions.
Course Outline Policy
Areas of Concern Details

Contact and Non-contact Hours This 3-unit course self-instructional manual is
designed for blended learning mode of instructional
delivery with scheduled face to face or virtual
sessions. The expected number of hours will be 54
including the face to face or virtual sessions. The
face to face sessions shall include the summative
assessment tasks (exams) since this course is
crucial in the CPA licensure examination (CPALE).
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
Assessment Task Submission Submission of assessment tasks shall be on 3rd, 5th,

7th and 9th week of the term. The assessment paper
shall be attached with a cover page indicating the
title of the assessment task (if the task is
performance), the name of the course coordinator,
date of submission and name of the student. The
document should be emailed to the course
coordinator. It is also expected that you already paid
your tuition and other fees before the submission of
the assessment task.
If the assessment task is done in real time through

the features in the Blackboard Learning
Management System, the schedule shall be
arranged ahead of time by the course coordinator.
Since this course is included in the licensure

examination for CPAs, you will be required to take
the Multiple Choice Question exam inside the
University. This should be scheduled ahead of time
by your course coordinator.
This is non-negotiable for all licensure-based
programs.
Turnitin Submission (if To ensure honesty and authenticity, all assessment
necessary) tasks are required to be submitted through Turnitin
with a maximum similarity index of 30% allowed.
This means that if your paper goes beyond 30%, the
students will either opt to redo her/his paper or
explain in writing addressed to the course
coordinator the reasons for the similarity. In
addition, if the paper has reached more than 30%
similarity index, the student may be called for a
disciplinary action in accordance with the
University’s OPM on Intellectual and Academic
Honesty.
Please note that academic dishonesty such as

cheating and commissioning other students or
people to complete the task for you have severe
punishments (reprimand, warning, expulsion).
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Phone No.: (082)300-5456 Local 137
Penalties for Late The score for an assessment item submitted after
Assignments/Assessments the designated time on the due date, without an
approved extension of time, will be reduced by 5%
of the possible maximum score for that assessment
item for each day or part day that the assessment
item is late.
However, if the late submission of assessment

paper has a valid reason, a letter of explanation
should be submitted and approved by the course
coordinator. If necessary, you will also be required
to present/attach evidences.
Return of Assignments/ Assessment tasks will be returned to you two (2)
Assessments weeks after the submission. This will be returned by
email or via Blackboard portal.
For group assessment tasks, the course coordinator

will require some or few of the students for online or
virtual sessions to ask clarificatory questions to
validate the originality of the assessment task
submitted and to ensure that all the group members
are involved.
Assignment Resubmission You should request in writing addressed to the
course coordinator his/her intention to resubmit an
assessment task. The resubmission is premised on
the student’s failure to comply with the similarity
index and other reasonable grounds such as
academic literacy standards or other reasonable
circumstances e.g.
illness, accidents financial constraints.
Re-marking of Assessment You should request in writing addressed to the
Papers and Appeal program coordinator your intention to appeal or
contest the score given to an assessment task. The
letter should explicitly explain the reasons/points to
contest the grade. The program coordinator shall
communicate with the students on the approval and
disapproval of the request.
If disapproved by the course coordinator, you can

elevate your case to the program head or the dean
with the original letter of request. The final decision
will come from the dean of the college.
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Phone No.: (082)300-5456 Local 137
Grading System All culled from BlackBoard sessions and traditional

contact
Course discussions/exercises – 30%
1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%
All culled from on-campus/onsite sessions (TBA):

Final exam – 40%
Submission of the final grades shall follow the usual

University system and procedures.
Preferred Referencing Style Harvard Referencing Style
Student Communication You are required to create a umindanao email

account which is a requirement to access the
BlackBoard portal. Then, the course coordinator
shall enroll the students to have access to the
materials and resources of the course. All
communication formats: chat, submission of
assessment tasks, requests etc. shall be through the
portal and other university recognized platforms.
You can also meet the course coordinator in person

through the scheduled face to face sessions to raise
your issues and concerns.
For students who have not created their student

email, please contact the course coordinator or
program head.
Contact Details of the Dean Dean Lord Eddie I. Aguilar
Email:
aguilar_lordeddie@umindanao.edu.ph
Phone: (082) 305 0645 local 137
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
Contact Details of the Asst. Asst. Dean Mary Grace S. Sombilon

Dean and Program Heads Email:mgsombilon@yahoo.com
Phone: (082) 305 0645 local 137
Mr. Devzon U.Porras

PH – BSIA, BSAIS
Email: devzon@gmail.com
Phone: (082) 305 0645 local 137
Mr. Jade D. Solaña

PH – BSA, BSMA
Email: jd_solana@umindanao.edu.ph
Phone: (082) 305 0645 local 137
Students with Special Needs Students with special needs shall communicate with
the course coordinator about the nature of his or her
special needs. Depending on the nature of the need,
the course coordinator with the approval of the
program coordinator may provide alternative
assessment tasks or extension of the deadline of
submission of assessment tasks. However, the
alternative assessment tasks should still be in the
service of achieving the desired course learning
outcomes.
Online Tutorial Registration Through LMS or PM Chats
Library Contact Brigida E. Bacani

Email: library@umindanao.edu.ph
0951 3766681
For inquiries, you can email at

umlic.eresource@gmail.com,
raphael_digal@umindanao.edu.ph or chat with us
here http://library.umindanao.edu.ph
Facebook page: https://www.facebook.com/UM-
Learning-and-Information-Center-Davao-City-
962331877193048/
Well-being Welfare Support Ronadora E. Deala
Help Desk Email: Ronadora_deala@umindanao.edu.ph
09212122846
GSTC Facilitator
Zerdszen P. Ranises
Email:gstcmain@umindanao.edu.ph
09058924090
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
GSTC Facebook Page:

https://www.facebook.com/UM-GSTC-Main-CAE-
111901303784349/?modal=admin_todo_tour
Course Information – see/download course syllabus in the Black Board LMS
CC’s Voice: Hello, Future Accountants! Welcome to this course, ACC 123 –
Cost and Control. This course will surely help you in your journey
to becoming an accountant by learning the basics of cost accounting
principles and other management concepts.
CO : In this course, you will learn the key concepts of cost recognition,
classification, measurement and cost management principles in
planning, implementation, analysis and control. You will also learn
to apply the key concepts in cost accounting in the preparation of
cost of goods manufactured and sold and the preparation of cost of
production report in a job order costing system or process costing
system.
Let us begin!
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BIG PICTURE
Specific Leaning Outcome Week 10-12 (SLO) Oct. 20 to Nov. 6: At the end of the unit, you are expected
to:
i. Describe the terms and accounts peculiar to a merchandising type of business entity.
j. Compute Cash and Trade Discounts
BIG PICTURE IN FOCUS: ULO (I) Describe the terms and accounts peculiar to a merchandising type of
business entity. ULO (J ) Compute cash and trade discounts.
METALANGUAGE
In this section, the most essential terms peculiar for a merchandising concern type of business is
presented in order to have a common understanding as to how these terms are being used. Please refer
to these definitions in case you will encounter difficulty in understanding these terms.
1. Merchandise – refers to the goods that are intended for sale of a trading concern.
2. Sales – is a revenue account used to record income derived from the sale of goods or merchandise
of a merchandising or trading concern.
3. Sales Returns and Allowances/Purchase Returns and Allowances – refers to an account used to
record merchandise returned by the customer or buyer, or an adjustment to the price of the
goods sold/bought. This is called sales returns and allowances from the point of view of the seller,
purchase returns and allowances from the point from of view of the buyer.
4. Sales Discount/Purchase Discount –an account title use to record the amount deducted from the
price of the goods as an incentive for prompt payment. This is also called in accounting as cash
discount. From the point of view of the seller it’s called sales discount, but from the point of view
of the buyer it’s called purchase discount. Normally these documents is recorded in the “General
Journal”.
5. Credit period – refers to the term of sale normally express in number of days. Example if the credit
terms is 2/10, n/30, this means that the credit terms is 30 days.
6. Discount period – refers to the period stated in the credit period where a customer or buyer is
given a discount if the account is collected/paid within the agreed discount period. Example in
the terms 2/10, n/30 means a customer or buyer is given 10 days to pay in order to avail of a 2%
discount, if not a customer has to pay the full amount within 30 days.
7. Purchases – is a temporary account used to record the cost of merchandise bought during the
period if the entity uses the periodic method of accounting for inventory.
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Phone No.: (082)300-5456 Local 137
8. Trade Discounts – refers to discounts given to customers/buyers to encourage them to buy the
products because of low price due to discounts. There is no special accounting treatment of trade
discounts because this is not being recorded unlike cash discounts.
9. Transportation costs – refers to the cost of transporting goods from the seller to the buyer. If the
buyer shoulders the cost the account title use is “Freight In” or “Transportation In”, if the seller
shoulders the cost the account title use is “Freight Out” or “Transportation Out” or “Delivery
Expense”.
10. FOB Destination – (FOB means “Free on Board”) means the seller is responsible of the shipping
costs and the title of goods passes to the buyer at the point of destination.
11. FOB Shipping point – means the buyer is responsible of the shipping costs and the title of goods
passes to the buyer at the point of shipment which means when the goods are shipped from the
seller’s place of business.
12. Merchandise Inventory – an account title used to record the cost of goods that are not sold at
the end of the accounting period.
13. Cost of Goods Sold/Cost of Sales- represents the cost of inventory the entity has sold to
customers.
14. Gross profit – refers to the difference between net sales and cost of goods sold.
15. Distribution Cost- refers to expenses incurred in the distribution or selling the products such as;
salaries of salesmen, commission of salesmen, freight out, advertising expense, rentals of
marketing department and other related expenses in relation with selling the products.
16. Administrative Cost – refers to all other expenses incurred in carrying out business operations
such as salaries of admin employees, Light and water of administration office and many more that
are not related in the distribution of the products.
17. Sales Invoice – is a source documents prepared by the seller of goods and sent to the buyer to
document the revenue of the entity. Normally this is recorded in the “Sales Journal”.
18. Bill of lading – is a source document issued by the carrier ( trucking, shipping or airline) that details
the agreement and terms of delivery such as freight terms, time place and the person authorize
to receive the goods.
19. Statement of Account (SOA) – is a written notice to the debtor specifying the accounts that are
already due. Another form of source documents.
20. Official Receipt – is a source document that supports the receipt of cash by the seller and normally
recorded in the cash receipts journal.
21. Deposit Slips – these are forms owned by the bank to be filled-up by depositor stipulating the
depositor’s name, account number, date and the details of the deposit. These deposit slips when
validated by bank indicates that cash and checks were actually deposited or credited to the
account of the holder (company). This is also a source document.
22. Check – is a source document issued by a depositor ordering the bank to pay the amount stated
in the check from the depositor’s demand deposit to the person indicated in the check (called
payee). The entity issuing the check is the payor. A check is a document that supports the cash
voucher as a proof that something is being paid. Normally the check is recorded in the “Cash
Disbursement Journal”.
23. Purchase Requisition – is a source document that supports the purchase order requesting the
purchaser of the entity to purchase the requested goods from an employee user.
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Phone No.: (082)300-5456 Local 137
24. Purchase order (PO)– is a source document made by the buyer authorizing the seller to deliver
the merchandise as detailed in the form.
25. Receiving Report – is a source document containing information about the goods received from a
vendor. This source document is normally supported with vendor’s invoice and the PO of the
entity who made the purchased. This is recorded in the “Purchase Journal”.
26. Credit Memorandum –this is a source document issued by the seller to inform the buyer of any
adjustment made of the buyer’s account which might be caused by return of goods or price
adjustment. This normally recorded in the “general journal”.
27. Debit Memorandum- this is a source document issued by the buyer to inform the seller of any
adjustment which might be caused by return of goods or price adjustment. This is normally
recorded in the general journal.
ESSENTIAL KNOWLEDGE
The merchandising entity (or in layman’s term buy and sell) buys goods and the goods are sold in the same
form. So, from cash the entity the buy goods, then sell the goods then back to cash-this cycle continues
during the lifetime of the business. For cash sales, the cycle is from cash to inventory and back to cash.
Cash
Purchases
Cash sales
Inventory
For sales on account, the cycle is from cash to inventory to accounts receivable and back to cash. The
shorter the cycle the better is the business operations. The faster the sale of merchandise and the
collection of cash, the more profits the entity generates. The term use in accounting to describe
movement of merchandise/inventory is called inventory turn-over.
c
Collections Cash
Purchases
Acct. Rec’ble
Inventory
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Phone No.: (082)300-5456 Local 137
The graphical presentation shows the operating cycle of a merchandising concern. Cash Sales has shorter
operating cycle compared with sales on account or on credit.
How to compute cash discounts?

When the term of the sale is express in this manner “ 2/10, n/30” this means that the credit period is 30
days. If the customer/buyer will pay the account within 10 days a 2% discount is granted.
Example. On March 1, 2020 L Enterprise sold merchandise to M company for P20,000 terms 2/10, n/30.
If the customer M will pay within March 10, say March 8, an amount equal to 2% of P20,000 or P400 shall
be given as a discount, therefore customer M will only pay P19,600 to the vendor.
This is very clear that cash discounts can only be availed to sales on credit. Cash sales has no cash discounts
because it is already paid in cash. Then what do you call discounts availed on cash sales, it is trade discount
which is discuss in the next topic.
How to compute trade discounts?

A trade discount is granted to encourage customer to buy more and sometimes this is a strategy of the
company to attract more customers. There are company who sells their product thru the use of catalog.
It is very costly to print new catalogs every time they change their selling price, so instead they give trade
discount. In accounting trade discount is not recorded only cash discount.
When the sale of goods has a trade discount, may it be sales in cash or on credit, then you have to compute
the invoice price to determine how much amount of sales to be recorded, and how much shall the vendor
collects from the customer. Any merchandise returned by the customer, if stated at list price should be
converted to invoice price in making the adjustment.
Example 1: On March 10, 2020, ABC company sold merchandise to X company in cash for P100,000, terms:
less 5% COD (Cash on Delivery). The selling price of P100,000 is a list price because it is subject to trade
discount. First to convert list price into invoice price. Compute the invoice price.
Invoice Price = P100,000 less 5% discount or PP95,000 this is the amount to be recorded as sales for ABC
company, and if X company is another trader, the cost of merchandise purchased by X company will also
be P95,000. The P5,000 trade discount is not recorded.
Example 2: On March 11, 2020 ABC Company sold merchandise to Y Company on credit for P120,000,
terms : less 10%; 2/10, n/30. In this case there are two discounts granted to the customer Y. The 10%
trade discount and 2% cash discount. Determine the invoice price.
Invoice price = P120,000 less 10% discount or P108,000, this is the amount to be recorded as sales for
ABC company. If Y company will pay the account on or before March 21, 2020 a cash discount of 2% based
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Phone No.: (082)300-5456 Local 137
on the invoice price shall be given to the customer therefore, Y company will only pay ABC company
P105,840 (P108,000 – (.02 x P108,000) ), otherwise beyond this date Y shall pay the full amount of
P108,000.
Example 3. On March 15, 2020 ABC sold merchandise to Z company for P 200,000 terms: less 10%; 5%;
2/10, n/45. This is called series of trade discount. How much is the invoice price?
Invoice Price = P200,000 less 10% or P180,000 less 5% then invoice Price is P171,000.
If Z will pay on or before March 25, 2020, then a cash discount of 2% based on the invoice price of P171,000
is granted therefore the amount of money to collected from Z company is P171,000 less 2% discount or
P167,580.
In other words trade discount can be availed by customers who buy on credit or in cash.
TRANSPORTATION COST
Accounting for transportation cost is very important because in buy and sell business transportation cost
may form part of the cost of merchandise sold or purchased. An accountant cannot just merely record the
transportation cost as delivery expense, or freight out or freight in if the terms of the transaction does not
say so.
Merchandise is shipped either thru trucking, shipping or airline. A freight bill is prepared by a common
carrier in accordance with the instructions of the party making the shipping arrangements. When the
arrangement is FOB destination, the seller owns the goods in transit, thereby it is the responsibility of the
seller to pay the freight charges. When the arrangement is FOD shipping point, the buyer owns the goods
in transit thereby it is the responsibility of the buyer to pay the freight charges.
However, the responsibility is different from who actually pays the freight. If the arrangement is freight
collect, then the freight is paid by the party who received the goods, while if the arrangement is freight
prepaid, then the freight is paid by the party who shipped the goods. So confusion arise when you are
going to combine the responsibility and the party who actually pays the freight. The matrix below
summarizes the relationship of the these arrangements.
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Remember that FOB destination and FOB shipping point tells us who is responsible or will shoulder the
freight cost. But as to who actually pays the freight that is answered thru an arrangement whether its
freight prepaid or freight collect. In number 1 and 2, there is no accounting problem because the party
will just record it either a freight out or freight in. Number 3 and 4 is where a little confusion arises. If the
buyer pays the freight that should be shouldered by the seller then an entry seeking reimbursement from
the seller is made, while the seller shall record that reimbursement as “freight out”. On the other hand,
when the seller seek reimbursement from the buyer, then an entry seeking reimbursement from the
buyer is made, while the buyer shall record that reimbursement as “freight in. “ Freight in account form
part or added to the determination of the cost of goods sold, while freight out is an operating expenses.
INVENTORY SYSTEMS
One distinct characteristic of a trading concern which cannot be found in a service concern is the presence
of cost of sales. In the determination of cost of sales Merchandise Inventory data is needed. There are
two systems of accounting for merchandise inventory, the periodic inventory system and the perpetual
inventory system.
Periodic Inventory System – is used by business that sell high in volume and low-priced items such as
grocery items, apparels, clothing, medicines, and many more. However, businesses of this type who are
using computerized system use perpetual though they sell high in volume and low-priced items. Under
this system, no entries are made to the inventory account as the merchandise is bought and sold. Instead,
a separate set of accounts like purchases, purchase discounts, purchase returns and allowances and
freight in, is used to accumulate information on the net cost of purchases. At the end of the period a
physical count is made to determine the merchandise inventory.
Perpetual Inventory System – is used by businesses that sell low-volume but high-priced goods such as
motor vehicle, jewelry, appliances, computers, furniture and other related goods. However, with the
advent of technology businesses who are using computerized system use perpetual inventory system
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even if they sell high volume, low-priced items. Such as supermarkets and department stores using point-
of-sale scanners.
Under this system, the inventory is updated every time there is a sale and purchase of goods. At the time
of sale, the cost is computed and recorded by a debit to cost of sales account and a credit to the inventory
account. Journal entries to recognized the inventory and the cost of sales accounts are made throughout
the accounting period. At the end of the period a physical count of merchandise inventory is made to
reconcile the actual count with what is in the record.
Sales Discount and Sales Returns and Allowance – these are contra income accounts that are deducted
from gross sales to determine the net sales.
Purchase Discounts and Purchase Returns and Allowance – these are contra cost accounts that are
deducted from the gross purchases to determine the net purchases.
SELF-HELP: You can also refer to the sources below to help you further understand the lesson.
• Ballada, Win & Ballada, Susan (2019), Basic Financial Accounting and Reporting. Sampalok
Manila: Domdane Publisher & Made Easy Books.
• https://www.accountingverse.com/accounting-basics/
LET’S CHECK
Activity 26. Understanding the terms and concepts is your first step in recording transactions involving
merchandising or trading concern type of business. On the space provided you are required to write the
correct term as described.
1. ______ is an account title used to accumulate the goods that are intended for sales during the
period under the periodic inventory system.
2. Under periodic inventory system, _________ account remain unchanged.
3. Transportation in or freight in is normally ____________ to the cost of goods sold.
4. Net Sales less cost of goods sold equals ________________.
5. __________ is a document prepared by the carrier detailing the terms of delivery.
6. __________ incentive offered to customer/buyer to encourage early payment of goods bought
on credit.
7. The term “2/10, n/30” means that the buyer may deduct 2% from the invoice price if payment is
made within 10 days from the ______________.
8. The term freight prepaid or collect will dictate who ___________ the transportation cost.
9. Under this transportation arrangement the seller is responsible for the transportation costs, this
is called ______________.
10. When goods in transit are included in the inventory this must be shipped under _____________
transportation arrangement.
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11. This is a document made by the buyer authorizing the seller to deliver the goods as stated in the
form.______________
12. This document is prepared by the seller of goods and sent to the buyer to document items sold is
called ________________.
13. Under this inventory system, both the sales amount and the cost of goods sold amount are
recorded every time the items are sold. This is ___________________.
14. This is a shipping term where the buyer shoulder the shipping costs. _______________.
15. This type of transportation arrangement whereby ownership of goods passes to the buyer only
when the buyer receives the merchandise. _________________.
16. ___________ is the document evidences the receipt of cash by the seller.
17. This a document containing details of the goods received from a vendor is called _______.
18. These are expenses incurred in relation to the distribution of the product. ________.
19. An account title use to record the revenue of a trading concern. _________.
20. It is a discount that encourages the customer to buy more because of big discounts from the list
price. __________________.
21. Periodic inventory system are commonly used by businesses who sell ___________.
22. Purchase returns and Allowance is deduction of ______________ account.
23. __________ Inventory system that provide an up-to-date amount of inventory on hand.
24. __________ is a transportation costs that is part of the operating expenses.
25. Accounting treatment for an FOB destination, freight collect arrangement is _______.
LET’S ANALYZE
Activity 27. Getting acquainted with the essential terms in the study of accounting is not enough, what
also matters is you should be able to demonstrate your understanding by applying the concepts in a real
life situation. For every situation cited below, you are going to explain, the correct approach or method
to be used in dealing with the situation.
1. ABC Enterprise is a grocery store that sells high volume but relatively low-priced items. The entity has
a computerized system (point-of-sale scanner) to account efficiently all items sold. The accountant
decided to use the periodic inventory system because the entity sells high volume and low-priced
items, anyway at the end of the period a physical count of goods has to be made to establish the unsold
items (merchandise inventory end). Do you agree with the accountant? If Yes why, if No support your
answer.
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2. On April 5, 2020 Company A sell merchandise to Company L for P50,000 under the terms: 2/10, n/30
FOB Shipping point freight prepaid. Company A being the shipper paid the freight amounting to P2,000.
On April 12, Company L paid in full the account amounting to P50,960. Company A notify Company L
that the amount to be paid is not P50,960 but P51,000. Whose claim do you think is correct A or L?
Explain
3. On April 10, 2020, B Trading sold merchandise to EFC Co. Limited for P130,000 under the terms: less:
5%; 2/10, n/30 FOB destination freight collect. EFC Co. Limited paid the freight of P5,000. On April 15,
EFC Co. Limited returned to B Trading defective merchandise worth P10,000 (stated at list). EFC Co.
Limited paid the account within the discount period amounting to P106,230. B Trading notify. EFC Co.
Limited that the amount that they should pay is P106,720. Whose claim do you think is correct B or
EFC? Explain
4. On April 18, 2020, C Company purchased merchandise from Z Company amounting to P80,000 under
the terms; 2/15, n/45 FOB Shipping Point freight Prepaid. Z Company paid freight amounting to P3,000.
On April 20, 2020, C Company returned defective goods to Z Company amounting to P6,000. C
Company paid the account within the discount period to avail of a discount. The accountant of C
Company when he computed the cost of merchandise purchased told the manager that the total cost
was P 72,520. On the other side, the accountant of Z Company reported a net sales of P69,520. In this
situation, there might be one or the 2 companies are wrong. Who do you think is not reporting the
correct value C or Z? Explain.
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Phone No.: (082)300-5456 Local 137
5. Using the data in no. 4, in case both of them are wrong, what is the correct cost of merchandise
purchased for C Company and the correct net sales for Z Company?. Present your answer with an
explanation why such answer is correct.
IN A NUTSHELL
YOUR TURN
Activity 28. Transactions for a merchandising concern is quite challenging compared with the service
concern. Apart from the terms, that you are going to master, you have to do some computations because
of freight terms, discounts and transportation arrangement that applicable to a merchandising concern.
In this activity, you are going to determine the amount to be paid or collected as may be the case, applying
the freight terms, discounts and transportation arrangement.
10
Matina, Davao City
Phone No.: (082)300-5456 Local 137
QUESTION AND ANSWER PORTION:
Using the table provided list down all your concern/questions that require further clarification. You may
raise this question thru LMS or forum. List down the answer on the opposite side of the questions/concern
raised.
Do you have any questions for clarification?

Question/Issues Answers
1.
2.
3.
KEYWORDS INDEX
1. Source Documents 7. Sales

2. Inventory Turn-over 8. Purchases
3. Transportation Arrangements 9. Discount Period
4. Transportation Cost 10. Credit Period
5. Trade discount 11. Merchandise Inventory
6. Cash Discount 12. Inventory System
11
Matina, Davao City
Phone No.: (082)300-5456 Local 137
SCHEDULES
Activity Date of Submission Where to Submit

Let’s Check : Activity 26 CF’s email
Let’s Analyze: Activity 27 CF’s email
In a Nutshell: Activity 28 CF’s email
Q&A Chat or Forum
BIG PICTURE IN FOCUS: SLO (k) Prepare journal entries, post entries and prepare trial balance of a
merchandising concern.
METALANGUAGE
In this section, the most essential terms peculiar for a merchandising concern type of business is
presented in order to have a common understanding as to how these terms are being used.
1. COD – refers to terms which means “Cash on Delivery”

2. List Price – refers to the value of merchandise sold gross of trade discount.
3. Invoice Price – refers to the value of merchandise sold net of trade discount.
4. Transportation arrangement- refers to the agreement in transporting the goods to determine its
ownership while the MDSE is in transit, whether FOB destination or FOB shipping point.
5. Freight Terms – refers to how is the freight being paid, prepaid or collect.
Some of the terms were already discussed in the previous lesson. Presented in ULO I and J please refer to
the previous definitions in case you will encounter difficulty in understanding the terms use in this section.
ESSENTIAL KNOWLEDGE
Basically journal entries for service concern and merchandising concern are the same, the only difference
is in the recording of revenues and accumulation of the cost of sales. Because of this additional account
titles are introduced which were already discuss in the previous lesson.
How to record revenue and collection cycle transactions?

These group of transactions refer to sales transactions, collection and returned of MDSE or price
adjustments. Therefore, we are making the entries from the seller’s perspective.
Assume the following transactions of EBG Trading.

Illustration 1 On Feb 2, 2020 sold MDSE amounting to P100,000 terms: COD, less 5% FOB destination
freight prepaid. Freight paid is P6,000.
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
Since the term has a trade discount, convert the list price of P100,000 into an invoice price
(P100,000 minus (P100,000 x .05))= P95,000. Always remember that trade discount is not recorded.
Journal entry: To record the payment of freight

Cash . . . . . . . . . . . . . . .. . . P95,000. Freight Out . . . . P6,000
Sales . . . . . . . . . . . . . . . . . . . . P95,000 Cash . . . . . . . . . . . . . P6,000
Received cash for MDSE sold. Payment of freight charges
There is an entry for the freight because it is the responsibility of the seller to pay the freight and because
it is freight prepaid it was paid by the seller upon shipment.
Suppose in the above transaction, the customer will return defective MDSE worth P5,000 at list price.
Convert the list price into invoice price (P5,000 x .95%)
Journal Entry:
Sales Returns and Allowances . . . . . . P4,750
Cash . . . . . . .. . . . 4,750
Refund to customer for the returned of defective MDSE.
Illustration 2 On Feb. 3, 2020 sold MDSE amounting to P80,000 terms: 2/10, n/30 FOB Shipping point
freight collect.
Journal Entry:
Accounts Receivable . . . . . . . . P80,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . P80,000
Terms: 2/10, n/30 FOB Shipping point freight collect. (you can use the terms as your explanation)
Explanation: No entry for freight because its shipping point and freight collect. It is the responsibility of
the buyer to pay the freight and because it’s freight collect it was the buyer who pays the freight therefore
no entry on the part of the seller.
Suppose in the above transaction, the customer will return defective MDSE worth P10,000.
Journal Entry:
Accounts Receivable. . . . . . . . . . . . P10,000
Adjustment made for the returned of defective MDSE
Explanation: Take note that the credit is Accounts Receivable, there is reduction of receivable because the
MDSE returned was previously bought on credit, therefore the receivable from the customer is reduce by
P10,000.
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
If the customer’s account will be collected within the discount period the entry will be:
Cash (P70,000 x .98). . . . . . . .P68,600
Sales Discount. . . . . . . . . . . . 1,400
Accounts Receivable . . . . . . . . . . . . P70,000
Collection of account within the discount period.
What if collection is beyond the discount period?

Cash . . . . . . . . . . . . . . P70,000
Accounts Receivable . . . P70,000
Collection of account beyond the discount period
(note that the sales discount is forfeited)
Illustration 3. On Feb. 5, 2020 sold MDSE amounting to P75,000 terms: 2/10, n/30 FOB destination freight
collect. Amount of freight paid by the buyer is P3,700.
Journal Entry:
Freight out . . . . . . . .. . . . . . . .. 3,700
Sales . . . . . . . . . . . . . . . . . . . . . . . . P75,000
Terms: 2/10, n/30 FOB destination freight collect.
Explanation: In this case, the freight terms is freight collect, therefore the buyer pays the freight cost but
it is the responsibility of the seller to pay because of the transportation arrangement of FOB destination.
So, the buyer shall seek reimbursement from the seller for the freight paid. Instead of collecting from the
buyer P75,000 only P71,300 has to be collected because of the freight that was paid by the buyer. ( But if
we are going to compute the cash discount it has to be based from the sales invoice of P75,000, in case
if the buyer will pay within the discount period).
Journal Entry:
Cash . . . . . . . . . . . . . . . P64,900
Sales Discount. . . . . . . . . . . . 1,400
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Matina, Davao City
Phone No.: (082)300-5456 Local 137

Cash . . . . . . . . . . . . . . P66,300
Explanation: Why is the balance of A/R is P66,300? Answer (P70,000 less P3,700) freight paid by the buyer.
Why is the sales discount is P1,400? Answer (P70,000 x .02) the computation of discount should be based
on the amount of receivable (P75,000-5,000) do not consider the P3,700 because that is the freight paid
by the buyer reimbursed from the seller.
Illustration 4. Using the data in illustration 3 except the terms are : FOB shipping point freight prepaid
and the amount of freight paid by the seller is P3,700.
Journal Entry:
Sales . . . . . . . . . . . . . . . . . . . . . . . . P75,000
Terms: 2/10, n/30 FOB shipping point freight prepaid.
Accounts Receivable . . . . P3,700

Cash . . . . . . . . . . . . . . . . . . . . P3,700
Payment of freight charges (chargeable to buyer)
Explanation: In this case, the transportation arrangement is FOB Shipping point and the freight terms is
freight prepaid, therefore it is the responsibility of the buyer to pay the freight but it was the seller who
pay because of the freight terms “freight prepaid”. So, the seller shall seek reimbursement from the buyer
for the freight paid. Instead of collecting from the buyer P75,000, it should be P78,700. ( But if we are
going to compute the cash discount it has to be based from the sales invoice of P75,000, in case the
buyer will pay within the discount period).
Journal Entry:
Cash . . . . . . . . . . . . . . . P72,300
Sales Discount. . . . . . . . . . . . 1,400
15
Matina, Davao City
Phone No.: (082)300-5456 Local 137

Cash . . . . . . . . . . . . . . P72,300
Explanation: Why is the balance of A/R is P73,700? Answer (P70,000 plus P3,700) freight paid by the seller.
Why is the sales discount is P1,400? Answer (P70,000 x .02) the computation of discount should be based
on the amount of receivable (P75,000-5,000) do not consider the P3,700 because that is the freight paid
by the seller reimbursed from the buyer.
How to record purchase of MDSE and payment cycle transactions?
These group of transactions refer to purchase of MDSE transactions, payment of account and returned of
MDSE or price adjustments to supplier. Therefore, we are making the entries from the buyer’s perspective.
Assume the following transactions of EBG Trading.

Illustration 5. On Feb 1, 2020 purchased MDSE amounting to P70,000 terms: COD, less 5% FOB
destination freight prepaid. Freight paid is P2,000.
Since the term has a trade discount, convert the list price of P70,000 into an invoice price
(P70,000 minus (P70,000 x .95)= P66,500. Always remember that trade discount is not recorded.
Using the periodic inventory system the;

Journal entry:
Purchases . . . . . . . . . . . . . . .. . . P66,500.
Cash . . . . . . . . . . . . . . . . . . . . P66,500
Purchase MDSE Terms : COD less 5%
Suppose in the above transaction, defective MDSE worth P3,000 at list price was returned to supplier.
Convert the list price into invoice price (3,000 x .95%)
Journal Entry:
Cash . . . . . . . . . . . . . . P2,850
Purchase Return and Allowances P2,850
Refund to supplier defective MDSE.
Illustration 6. On Feb. 2, 2020 bought MDSE amounting to P55,000 terms: 2/10, n/30 FOB Shipping point
freight collect. Amount of freight paid P2,500.
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
Journal Entry: To record the freight:

Purchases. . . . . . . . P55,000 Freight In. . . . . . P2,500
Account Payable. . . . . . . . . . . . . . . . . . . . . .P55,000 Cash . . . . . . P2,500
Terms: 2/10, n/30 FOB Shipping point freight collect. Payment of freight charges.
(you can use the term as a brief description of the transaction)
Explanation: There is an entry for the freight because its shipping point and freight collect. It is the
responsibility of the buyer to pay the freight and because it’s freight collect it was the buyer who pays the
freight.
Suppose in the above transaction, the buyer will return defective MDSE worth P5,000.
Journal Entry:
Accounts Payable . . . . . . P5,000
Purchase Returns and Allowances. . . . . . .P5,000
Explanation: Take note that the debit is Accounts Payable, there is reduction of liability because the MDSE
returned was previously bought on credit, therefore the obligation to the supplier is reduce by P5,000.
If the account will be paid within the discount period the entry will be:
Accounts Payable Cash . . . . P50,000
Cash (P50,000 x .98) P49,000
Purchase Discount 1,000 (50,000 x .02)
Payment of account within the discount period.
What if payment is made beyond the discount period?

Cash . . . . . . . . . . . . . . . .. . P50,000
Payment of account beyond the discount period
(note that the purchase discount is forfeited)
Illustration 7. On Feb. 4, 2020 purchased MDSE amounting to P60,000 terms: 2/10, n/30 FOB destination
freight collect. Amount of freight paid by the buyer is P1,800.
Journal Entry:
Feb. 4, Purchases . . . . . . . . P60,000
Accounts Payable. . . . . . P60,000
Terms: 2/10, n/30 FOB destination freight collect.
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
Journal Entry
Cash . . . . . . . . . . . . . . . . . . . P1,800
Payment of freight charges
Explanation: In this case, the freight terms is freight collect, therefore the buyer pays the freight cost but
it is the responsibility of the seller to pay because of the transportation arrangement of FOB destination.
So, the buyer shall seek reimbursement from the seller for the freight paid. Instead of paying P60,000 only
P58,200 has to be paid because of the freight that was paid by the buyer. ( But to compute the cash
discount it has to be based from the sales invoice of 60,000, in this will be paid within the discount
period).
Suppose in the above transaction, there is a return of defective MDSE worth P2,000.
Journal Entry:
Purchase Returns and Allowances . . . P2,000
If this account will be paid within the discount period the entry will be:
Accounts Payable . . . . P56,200
Cash. . . . . . . . . . . . . .. . . . . . P55,040
Purchase Discount . . . . . . . . 1,160

Accounts Payable . . . . . . . . . P56,200
Cash . . . . . . . . . . . . . . . . . . . . . . P56,200
Explanation: Why is the balance of A/P is P56,300? Answer (P60,000 less P1,800 – 2,000) freight paid by
the buyer.
Why is the purchase discount is P1,160? Answer (P58,000 x .02) the computation of discount should be
based on the amount payable less the returns. Do not consider the P1,800 because that is the freight paid
by the buyer reimbursed from the seller.
Illustration 8. Using the same data in No. 7 but the terms is 2/10, n/30 FOB SHIPPING POINT freight
collect. So the entry will be:
18
Matina, Davao City
Phone No.: (082)300-5456 Local 137
Journal Entry:
Purchases . . . . . . . . P60,000
Terms: 2/10, n/30 FOB shipping point freight collect.
Journal entry for the freight

Freight In . . . . . . . . P 1,800
Cash . . . . . . . . . . . . . P1,800
Payment of freight charges
Cash. . . . . . . . . . . . . .. . . . . . P56,840
Explanation:
You notice that the amount debited for A/P is P58,000 (P60,000 – 2000). The freight of P1,800 was not
deducted because of the transportation arrangement of FOB Shipping point and freight terms of freight
collect. It is the responsibility of the buyer to pay and since it is freight collect it was the buyer who pay for
the freight.

Cash . . . . . . . . . . . . . . . . . . . . . . P58,000
Illustration 9. What would be the entry if the terms is FOB shipping point freight prepaid?
Journal Entry:
Feb. 4, Purchases . . . . . . . . P60,000
Terms: 2/10, n/30 FOB Shipping point freight prepaid.
Freight In . . . . . . . . . P1,800
Accounts Payable . . . . . . . P1,800
To record freight charges
Cash. . . . . . . . . . . . . .. . . . . . P58,640
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Matina, Davao City
Phone No.: (082)300-5456 Local 137

Explanation:
You notice that the amount debited for A/P is P59,800 (P60,000 – 2000 +1,800). The freight of P1,800 was
added because of the transportation arrangement of FOB Shipping point and freight terms of freight
prepaid. It is the responsibility of the buyer to pay and since it is freight prepaid it was paid by the seller
that’s why the buyer has pay to pay and add to the buyer’s obligation.

Cash . . . . . . . . . . . . . . . . . . . . . . P59,800
MDSE VS. NON-MDSE

The above entries is only applicable if the items bought are merchandise (items that are intended for
resale). The entries would be different if the items bought are non-mdse.
ASSUME:
Illustration 1: On February 10, 2020, the company purchased a computer for office use in cash
amounting to P30,000.
Entry:
Office Equipment P30,000
Cash P30,000
Bought office equipment in cash
Explanation: “Purchases” account title is not being used because the item bought is a non-mdse.
Illustration 2: On February 11, 2020, the company purchased a delivery equipment on credit from Soul
company for P400,000 terms: less: 5% 2/10, n/30. FOB shipping point. The buyer paid the freight
amounting to P10,000. An allowance was granted for a slightly damaged equipment with a list price of
P5,000. The company paid in full within the discount period.
Entry:
Delivery Equipment P380,000
Accounts Payable P380,000
Bought delivery equipment terms: less: 5%, 2/10, n/30.
Explanation: Take note that the cost of the Delivery Equipment is net of the 5% trade discount (P400,000
x .95). When a company bought a non-mdse it will be charged or debited to an appropriate non-mdse
account.
20
Matina, Davao City
Phone No.: (082)300-5456 Local 137

Cash P10,000
Payment of charges
Explanation: Instead of debiting freight in, the account use is Delivery Equipment because the freight paid
does not pertain to freight of MDSE but of a non-mdse.
Accounts Payable P 4,750 (5,000 x .95)

Allowance granted for the slight damage equipment.
Explanation: Instead of crediting “Purchase Return and Allowances”, it is credited to Delivery Equipment
because this is a non-mdse. Take note that the trade discount is not recorded.
Account Payable P 375,250

Delivery Equipment 7,505
Cash 367, 745
Full payment of account
Explanation: The balance of accounts payable is (P380,000 – 4,750= 375,250). From this amount you are
going to deduct the 2% cash discount (375,250 – (.02 x 375,250)). Instead of crediting purchase discount,
the credit is delivery equipment because this is the cash discount of anon-mdse.
HOW TO RECORD THE PAYROLL?

When an entity record the salaries of employees, the amount of salaries shall equal to the amount of
salaries that an employee is entitled to. Any statutory deductions such as SSS, Philhealth, Pag-ibig and
withholding taxes shall be recorded as a liability and later shall be remitted to the agencies together with
the employer’s share. If an employee has cash advances with the employer and is being paid thru salary
deductions the same is recorded as a decrease of cash advances (which is credited).
ILLUSTRATION
On August 31, 2020, the company paid the salaries of employees for the 2nd half of the month as follows:
Salaries of employees. . . . . . . . . . . . P100,000
Less :SSS premium employee share. 4,000
Philhealth premium employee share. 2,000
Pag-ibig premium employee share 3,000
Withholding taxes 1,000
Cash advances 500
Net amount paid . . . . . . . . . . . . . . . . . . . . . . . . . . P 89,500
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
JOURNAL ENTRY:
Salaries Expense . . . . . . . . . . . . . . . . . . P100,000
SSS, Philhealth, HDMF premium payable. . . . . . . P 9,000
Withholding taxes payable . . . . . . . . . . . . . . . . . .. 1,000
Advances of Employees . . . . . . . . . . . . . . . . . . . . . 500
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,500
Payment of salaries
Take note that the amount of salaries expense is the gross value of the salaries of employees, but the
amount paid is only P89,500. The difference of P10,000 is treated as liabilities while the P500 is the
payment of cash advances of the employee/s.
When these statutory deduction will be remitted to SSS, Philhealth, Pag-ibig and BIR the entry are as
follows:
We will just assume the amount of employers share for SSS, Philhealth and Pag-ibig. In reality there is
a graduated rate and it depends upon the salary rate of the employee. All amounts here are just an
assumption for purpose of illustrating the entry.
Assume the following:
SSS employer share is P6,000; Philhealth employer share is P2,000 and Pag-ibig employer share is
P3,000.
The entry upon remittance to SSS, Philhealth, Pag-ibig and BIR:

JOURNAL ENTRY:
SSS contribution expense. . . . . . . . . P6,000
Philhealth contribution expense. . . 2,000
Pag-ibig contribution expense. 3,000
SSS/Philhealth/Pag-ibig premium payable. 9,000
Withholding taxes Payable . . . . . . . . . . . . . 1,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 21,000
Remittance to SSS, Philhealth, Pag-ibig and BIR.
SELF-HELP: You can also refer to the sources below to help you further understand the lesson.
• https://www.accountingverse.com/accounting-basics/
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
LET’S CHECK
Activity 29. Understanding the terms and concepts is your first step in recording transactions involving
merchandising or trading concern type of business. On the space provided you are required to write the
correct term as described.
26. ______ is an account title used to record sale of goods.
27. When a customer return a defective MDSE it should be debited to __________.
28. When a customer return a defective MDSE previously bought in cash the debit is “Sales Return
and Allowances” and credit to ___________.
29. Sales discount and sales returns and allowances are ____________ from sales.
30. Purchase discount and purchase returns and allowances are ________ from purchases.
31. Sales discount and sales returns have a normal _________ balances.
32. Purchase discount and purchase returns and allowances have a normal ______ balances.
33. In a transportation arrangement FOB destination freight prepaid who pays the
freight?_________.
34. In a transportation arrangement FOB destination freight collect who pays the freight?_________.
35. In a transportation arrangement FOB shipping point freight collect who is responsible of the
freight? ________________.
36. In a transportation arrangement FOB shipping point freight prepaid who is responsible of the
freight? ________________.
37. If the arrangement is FOB destination freight collect, what is the treatment of the freight paid by
the buyer?____________.
38. If the arrangement is FOB shipping point freight prepaid, what is the treatment of the freight paid
by the seller?_______________.
39. Under perpetual system of recording inventory what account is used in-replaced of Purchases?
__________.
40. Under perpetual system, the entries to record the return of MDSE by the customer is to debit
Sales Return and Allowances (for amount of selling price) and credit to ________________ and
debit Merchandise Inventory (for the amount of cost) and credit to ____________.
41. What is the account title use to record freight in or discount of a non-mdse item bought or
purchased.
LET’S ANALYZE
Activity 30. In this activity you are going to apply the learning that you get from the essential knowledge.
Prepare the correct journal entries of the following transactions.
CASE 1
General Pharmacy a business engaged in buying and selling of medicines and other related products has
the following transactions for the month of March 2020. The entity buys merchandise on credit with a
terms of 3/10, n/45 and sell merchandise on credit terms of 1/5, n/30. But there are also cases where the
entity buy and sell merchandise in cash. The company uses the periodic system of recording inventory.
March 4- Purchased medicines and other related products to Ipil-ipil Pharmaceutical Company on credit
for P120,000. FOB Shipping point. Paid Allied Services for the freight amounting to P2,500.
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
March 5- Sold merchandise (MDSE) to various customers for cash P 36,000.

March 6- Returned defective MDSE to Ipil-ipil amounting to P10,000. Received returned from customer
on March 5 for wrong specification and refunded the amount paid P1,200.
March 7- Bought MDSE from Barato Company in cash P60,000.
March 9- Sold MDSE on credit to Laguna Corporation amounting to P72,000.
March 10- Paid in full account with Ipil-ipil Pharmaceutical Company.
March 12- Received returned from Laguna Corporation for wrong brand of medicine delivered on March
9 amounting to P5,000.
March 13- Received full payment from Laguna Corporation.
CASE 2
On April 2, 2020 Happy Company purchased MDSE from Enjoy Corporation with a list price of P450,000;
less:10% 2/10, n/30. Terms is FOB shipping point freight prepaid. Amount of freight paid by Enjoy
Corporation is P6,500. Happy Company returned to Enjoy Corporation damaged MDSE worth P10,000 at
list price. On April 12, Happy Company paid in full the account with Enjoy Corporation. Prepare the correct
entries to record the above transaction in the books of Happy Company. Happy uses the periodic system
of recording inventory.
CASE 3 Record the transactions in CASE 2 in the books of Enjoy Corporation.
IN A NUTSHELL
YOUR TURN
Activity 31. In this activity, you are going to record a comprehensive transactions involving merchandising
concern. Prepare the journal entries, T-accounts and trial balance of a merchandising concern. Cielo
Bonita is engaged in buying and selling of novelty items. The following transactions have transpired for
the month of Sept. 2020.
Sept. 1 – She invested P100,500 cash and an old office equipment presently valued at P33,200 which she
bought 2 years ago for P50,000.
Sept. 2- Purchased MDSE from ABC Enterprise for P20,000. Terms: n/30, FOB destination. ABC paid P1,500
for the freight cost.
Sept. 3- Sold MDSE for cash amounted to P10,600.

Sept. 6- Purchased MDSE from Ali Commercial for P26,500. Terms: 50% down payment, balance 2/10,
n/30.
Sept. 7 – Sold MDSE to Jay Cesar for P12,500. Terms: 2/10, n/30, FOB Shipping point.
Sept. 8 – Purchased from COVID Furniture a display counted for P6,000. Terms : 50% down payment,
balance 1/10, n/30.
Sept. 9 – Sold MDSE to Giles Anthony for P14,000. Terms: 2/10, n/30, FOB destination. Paid freight cost
of P800.
Sept. 12 – Purchased MDSE from Mini Mart. For P4,000. Terms: 2/10, n/30.
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Matina, Davao City
Phone No.: (082)300-5456 Local 137
Sept. 14- Sold goods ro April Anne amounted to P6,350. Terms: Cash on delivery.
Sept. 15- Paid salaries of sales clerk amounting to P8,000.
Sept. 16 – Paid in full Covid Furniture for the Sept. 8 account.
Sept. 17 – Collected in full Jay Cesar less discount of 2%.
Sept. 22- Paid in full account to Mini Mart.
Sept. 24 – Collected account of Giles Anthony in full.
Sept. 25- Paid the monthly rental net of 5% withholding tax P4,750.
Sept. 30- Paid the salaries of sales clerk for the second half amounting to P7,600 net of the following
deductions: SSS P200; PHIC P100 and HDMF P100.
raised.

4.
5.
6.
KEYWORDS INDEX
7. Invoice Price 7. Sales

8. List price 8. Purchases
9. Sales Return & Allowances 9. Purchase Discount
10. Sales discount 10. Purchase Returns and Allowances
11. Freight out 11. Accounts Payable
12. Accounts Receivables 12. MDSE vs. NON-MDSE
SCHEDULES
Activity When to Submit Where to Submit

Activity 29
Activity 30
Activity 31
Q and A Forum or virtual session
25
Matina, Davao City
Phone No.: (082)300-5456 Local 137
BIG PICTURE IN FOCUS: SLO (L) Prepare worksheet, and financial statements of a merchandising concern.
METALANGUAGE
Accountants usually use worksheet for easy transfer of data from the adjusted trial balance to the financial
statements. The previous lesson in worksheet preparation pertain to business engage in providing
services. In a merchandising concern there is a little difference in the presentation of some accounts
because of the presence of some accounts which is peculiar to merchandising concern. You need to
possess full understanding of the terms for you to demonstrate SLO(L). These terms were already
discussed in your previous lesson, but nevertheless this just a review of those terms.
1. Worksheet – is a working paper that summarizes the data from the General Ledgers to facilitate
the preparation of financial statements. This document is prepared when the accountant is now
ready to make some adjustments of the figures that appears in the unadjusted trial balance.
Actually adjusting entries and worksheet are prepared simultaneously. For companies with few
accounts it is possible to prepare financial statement directly from the adjusted trial balance.
2. Unadjusted Trial balance – this is the summary of the recorded data from the journal. The
purpose of this document is to prove the equality of debits and credits prior to the next step of
the accounting process. This document will help the accountant identify those accounts that
requires adjustments.
3. Adjusted trial balance- this a trial balance prepared after posting/plotting the adjusting journal
entries on the worksheet. This will also serve as a go signal to the bookkeeper to record the
adjusting entries in the general journal and post to GL. The purpose of determining the adjusted
balance is to facilitate easy transfer of data to the FS. Therefore, the balances of the adjusted trial
balance should be reconciled with the updated GL.
4. Footing – in accounting footing means to add vertically, cross-footing means to add or deduct
horizontally.
5. Real Accounts (Permanent Accounts)- refers to Assets, Liabilities and Equity accounts, balances
of which is normally carried forward in the next accounting period.
6. Nominal or (Temporary Accounts) – refers to the Revenue and Expenses accounts which is
normally close at the end of the accounting period.
ESSENTIAL KNOWLEDGE
HOW TO SET-UP MERCHANDISE INVENTORY END?
In merchandising concern, one peculiar account is the presence of merchandise inventory. Merchandise
inventory represents the unsold items at the end of the period and it is determine through physical count
if the company uses periodic system. The unique feature of this account is, it has two classification it can
be an asset or an expense (part of the cost of sales). It is considered an asset if it is MDSE Inventory end
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while it is an expense it is MDSE inventory beginning. You might get confused why such account has to
classification, always remember if it is ending inventory, asset, if it is beginning inventory an expense. The
ending inventory of the current year (asset) will automatically becomes the beginning inventory of the
succeeding year (expense). It is important that as a bookkeeper you have to be consistent as to when you
are going to set-up the inventory, is it during adjustment or during closing entry. Both methods are correct
but you have to choose one and consistently use it to avoid duplication.
The entry to set-up MDSE inventory is very simple:

MDSE Inventory (End) …. . . . P xxx
Income and Expense Summary P xxx.
The above entry can be recorded as part of the adjusting entries (Adjusting method) or part of the closing
entry (Closing entry method). Either of the two is correct but do not use both because it is already
duplication.
Income and Expense Summary Account is a temporary account which will be closed at the end of the
period.
HOW TO PREPARE A WORKSHEET?

Preparation of worksheet is the step 5 of the accounting cycle. There are 5 steps in the preparation of
worksheet. Use 10-columns worksheet.
Important Reminder: Label first the worksheet: put heading either at the upper center or upper left
corner of the worksheet. The heading shall contain the (a) name of the company or owner; (b) name of
the document (worksheet); (c) date. You will also put label on the 10 columns; first 2 columns
“unadjusted trial balance Dr. and Cr. ”; next 2 columns “adjustments Dr. and Cr.”; next 2 columns
“adjusted trial balance Dr. and Cr.”: next 2 columns “Income Statement” Dr. and Cr.; and the last 2
columns “Balance Sheet or SFP” Dr. and Cr. Below is a sample for your reference
Illustration:
Step 1. On the first 2 columns enter the account balances extracted from the general ledgers (Unadjusted
trial Balance). Arrange the account in the same manner they are arranged in the GL (Assets, Liabilities,
Equity, Withdrawals, Revenue and Expense). Foot the unadjusted trial balance to check if the totals are
equal. See sample below.
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Observe that the unadjusted trial balance above has “MDSE Inventory” Account that is the MDSE Inventory
beginning of 2018 which is the ending of the previous year (2017) (If periodic system is used)
Step 2. On the next 2 columns (3 and 4 cols.” Adjustments”) enter the adjusting entries and foot the debits
and credits to determine if the totals are equal. For each adjusting entries a letter is used to identify the
debit entry and the corresponding credit entry (this is called referencing for easy traceability). Note the
adjustments are not entered yet in the journal until after the worksheet is completed. This is to ensure
that no adjustments are overlook.
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Note: Encircled letters are used for referencing
Step 3. Compute the adjusted balance of each account by adding or deducting the account balances from
the unadjusted trial balance. Enter the adjusted amounts in the “adjusted trial balance” columns
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Matina, Davao City
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In computing the adjusted balance, for each adjustment you are going to cross-foot the figures. In the
above example (a) prepaid insurance has a debit balance of P54,000, in the adjustment column it has a
credit entry of P18,000 therefore the balance is P36,000 (P54,000-18,000) placed on the debit side of the
adjusted trial balance column because the debit (54,000) is greater than the credit (P18,000), so the
balance is a debit balance of P36,000. The same computation you are going to make in “Office Supplies”.
What happen if the unadjusted trial balance the account is credited and the adjustment is also credited ?
This is illustrated below.
In the illustration, accumulated Office Equipment is a credit balance with a credit adjustment. These two
figures if combine shall generate a credit balance of P75,000 (P50,000 + P25,000). This amount shall be
placed on the credit side of the adjusted trial balance.
To summarize: a.)Debit + Debit, = balance debit;
b.) Debit – Credit=balance it depends ( if Debit is greater than credit) debit balance
(If Credit is greater than debit) credit balance.
c. ) Credit + Credit = balance credit
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You are going to copy in the adjusted columns all other accounts that were not affected by the adjustment
then foot the adjusted trial balance to check whether the total of the debits and credits are equal. Below
is the complete illustration.
The method use here in setting up of MDSE inventory is closing entry method, therefore no entry is made
in the adjustment column because the set-up is part of the closing entry. Also please note that the
beginning inventory of P627,000 is the amount forwarded in the adjusted trial balance.
Step 4 From the adjusted trial balance extend to the balance sheet columns all real accounts (Assets,
liabilities, Equity) and to the income statement columns all nominal accounts (Revenue and Expenses).
Withdrawal is extended to the Balance Sheet column.
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Step 5 Compute profit or loss. The difference between total Revenues and Total Expenses in the income
statement represents the performance of the business. If the revenue total (Credit side of the income
statement column) is greater than the total expenses (debit side of the income statement column)the
result is a net profit, net loss if total expenses is greater than the total revenue. Enter profit or loss as a
balancing amount in the income statement and in the balance sheet, and compute the final column totals.
THE COMPLETE WORKSHEET IS ILLUSTRATED BELOW
Observed the presentation of inventory end of P532,000 using the closing entry method. It is not presented
in the adjustment column because the author decided to use the closing entry method which means the
setting up of inventory is done in the closing entry not during adjustment
FROM THE COMPLETED WORKSHEET, WE ARE NOW READY TO PREPARE THE FINANCIAL STATEMENTS
(INCOME STATEMENT AND STATEMENT OF FINANCIAL POSITION)
There are two forms of income statement, the single-step form for the service concern and the multiple-
step form for the merchandising or trading concern. The statement of financial position has also two
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forms, the report form and the account form. The most popular form used by preparer is the report form
(which can be presented in comparative or non-comparative form).
The appropriate form of income statement for merchandising concern is the multiple-step.
Requisites of a good form financial statements:
a. There must be a heading

b. For income statement, operating expenses must be presented separately from interest expense to
determine the operating income. In merchandising concern expenses are categorized into two
groups, the cost of sales (cost of goods sold) and the operating expenses.
c. Computation of operating Income is important because it will tell the users, how efficient is the
company in generating income from its operations.
d. In the statement of financial position, you have to categorize assets as to Current Assets from Non-
current Assets; Liabilities as to Current Liabilities from Non-Current Liabilities. This is important
for the users to evaluate the financial condition of the business as to liquidity, solvency and
profitability.
ILLUSTRATION OF “STATEMENT OF FINANCIAL POSITION “
In the illustration please observe the correct format. You can easily identify the amount of current assets
which is P697,000, total amount of non-current assets which is P295,000 and the total assets of P992,000.
Current assets data is very important in determining the liquidity of the company, if the company can pay
its obligation as it becomes due and demandable.
In the liability section the amount of current liability is P67,000, no non-current liability, and capital
balance end of the owner is P925,000 sum it up, then total liabilities and owner’s equity is P992,000 which
corresponds to the total assets. Remember the basic accounting equation.
If we are going to determine how liquid is the company, you divide total current assets with total current
liability, in this case (P667,000/P67,000) = 10.40 which means for every P1 of liability there is P10.40
current assets available for payment, in other words the company is very liquid. But another thing you are
going to consider in judging whether the company can pay its obligation or not is to examine the
composition of the current assets. This will be further discussed in your financial management subject.
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ILLUSTRATION OF “INCOME STATEMENT “
In the illustration please observe the correct format. It is very important that in the presentation the
amount of gross profit is determine because this will tell us the amount of profit derived from selling the
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goods which is the correct matching of revenue and cost (expense). Please note the placement of MDSE
inventory beg. (P627,000) which is added to the net purchases to get the total amount of goods available
for sale (TGAS). From the TGAS mdse inventory end is deducted to arrive at the amount of cost of sales.
ILLUSTRATION OF “STATEMENT OF CHANGES IN EQUITY“
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If the only movement in the equity section is the result of operations(either profit or loss) and withdrawal
of owner this statement is optional.
Take note that the Statement of Financial Position and Income statements can also be presented using
the line items if there are numerous accounts. Similar accounts can be grouped into line items and has to
be supported by a schedule. In the above illustration, since there are few accounts, line items is not used.
raised.

7.
8.
9.
KEYWORDS INDEX
13. Real Accounts 7. Cost of Sales

14. Footing 8. Gross Profit
15. Nominal Accounts 9. Current Assets
16. Adjusted Balance 10. Operating Income
17. Closing Entry method 11. Multiple-step Income Statement
18. Adjusting Entry Method 12. Requisites of a good form FS
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SELF HELP: You can also refer to the sources below to help you understand the lesson
• Heintz, James A. (2017). College Accounting 22nd Edition. Australia: Cengage Learning
• Philips,Fred (2016). Fundamentals of Accounting. McGraw Hill Education
• Warren, Carl S.(2016). Accounting 26th Edition. Australia: Cengage Learning
• Wild, John J. (2016). Fundamentals Accounting Principles. New York NY: McGraw Hill
Education.
LET’S CHECK
Activity 32:
1. If the income statement columns (debit and credit) are not equal after adding the respective
columns then the entity generated either a ______ or a ______.
2. In the adjusted trial balance, the owner’s equity account reflects the _______ of the period
balance.
3. In the income statement columns, when the total debit exceeds the total credit, the result of the
business operations is ________.
4. If the total revenue exceeded the total expenses then the amount of profit shall be placed on the
______ side of the income statement column.
5. If the total debit exceed total credits then the company has incurred a _______.
6. If the company’s business operations resulted to a net profit, which side of the balance sheet
column has smaller value?
7. _________, _________, _________ and ________ are the four important information that will
appear in the statement of changes in equity.
8. If the amount of net profit earned for the period is smaller than the amount withdrawn by the
owner, the capital balance at the end will _________.
9. Net profit at the end of the period of Masagana Enterprise is P400,000. The owner withdrew
P50,000 per month for personal expenses, the capital of the owner will likely _______ by
________ at the end of the period.
10. If the company has a total cash of P1M, half of this amount was used to buy Land, the total assets
of the company will ____________.
11. Which inventory that would appear on the debit side of the income statement column? On the
debit side of the statement of financial position column?
12. Given the following accounts, arrange these accounts according to their liquidity, starting with
the most liquid account.
MDSE Inventory, Accounts Receivable, Prepaid Expenses, Notes Receivable, Cash, Prepaid Rent.
13. Cost of sales plus merchandise inventory end equals _________.
14. Gross profit plus cost of sales equals _________.
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15. Operating Income plus operating expenses equals __________.

16. Total cost of goods available for sale minus inventory beginning equals _______.
17. Total cost of goods available for sale minus inventory end equals _______.
18. Net sales minus cost of sales. Equals __________.
19. If net profit is P200,000 which is 10% of net sales, how much is net sales?
20. If total liabilities is P400,000 which is equal to 40% of the total assets then how many percent is
the total equity?
LET’S ANALYZE
Activity 33: Solve the following:
Case 1 ( 5 pts)
The unadjusted trial balance of Mayaman Enterprise reflected a balance in the allowance for doubtful
account amounting to P18,000. The Accounts receivable also reflects a balance of P550,000. The company
estimated that 4% of its outstanding accounts receivable is doubtful of collection.
Case 1.a How much is the adjusted balance of the allowance for doubtful account that should be reflected
in the adjustment column of the worksheet?
Case 1.b How much also is the adjusted balance of the doubtful account expense?
Case 1. c. What is the correct adjusting entry?
Case 2 (5 pts)
The unadjusted trial balance of Mayaman Enterprise reflected a prepaid insurance balance of P36,000
which covers a 2-year premium starting Oct. 1, 2019 and expire on Sept. 30, 2021. Mayaman’s accounting
period ends on Dec. 31, of every year.
Case 2.a What is the adjusted balance of the prepaid insurance on Dec. 31, 2019?
Case 2.b How much insurance expense that should be reflected in the income statement of the company?
Case 2.c If no adjustment is made at the end of the year, what would be the effect in the net profit of the
company?
Case 2.d What is the correct adjusting entry?
Case 3 (5 pts)
The unadjusted trial balance of Mayaman Enterprise reflected a balance in the accumulated depreciation
of equipment amounting to P150,000. The yearly depreciation of the equipment is P30,000.
Case 3.a How much is the adjusted balance of the accumulated depreciation for the equipment at the end
of December 31, 2019.?
Case 3.b How much is the adjusted balance of the depreciation expense?
Case 3.c What is the adjusting entry to record the provision for depreciation?
Case 3.d If provision for depreciation will not be recognized, what happen to the net profit of the
company?
Case 4 (5 pts)
The adjusted trial balance of Mayaman reflected the following accounts:
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Matina, Davao City
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Merchandise Inventory beginning . . . . . . . . . . . P220,000

Merchandise Inventory End . . . . . . . . . . . . . . . . 230,000
Net Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 950,000
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000
Freight Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Case 4.a How much is the total cost of goods available for sale?
Case 4.b How much is the cost of sales?
Case 4.c If inventory beg. Is P230,000 and inventory end is P220,000, what would be the effect in the net
income of the company?
Case 5 (5 pts)
Supplies account has a P60,000 unadjusted balance on the trial balance. At year-end the physical count of
supplies revealed that P20,000 are still unused.
Case 5.a What adjustment will appear on your worksheet?
Case 5.b If adjustment is not made at year-end, what account is understated or overstated?
Case 5.c What amount of supplies that would appear in the adjusted trial balance?
YOUR TURN
Activity 34: From the data below prepare in good form a 10 columns worksheet.
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Matina, Davao City
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Adjusting journal entries:
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This worksheet must be done in handwriting not computerized, then scan your output and send thru
email.
SCHEDULES
Activity When to Submit Where to Submit

Activity 32
Activity 33
Activity 34
Q and A Forum or virtual session
SPECIFIC LEARNING OUTCOME FOR WEEKS 13-14 NOV. 9 TO NOV. 21
BIG PICTURE IN FOCUS: SLO (m) Prepare closing entries, post-closing trial balance and reversing entries of
a merchandising concern.
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METALANGUAGE
In this section, the most essential terms encountered in the completion of accounting cycle and to
demonstrate SLO (m) will be operationally defined to establish a common frame of reference as how
these terms are used in the accounting process.
Please proceed immediately to the “Essential Knowledge” because the terms will also be discussed in that
section.
ESSENTIAL KNOWLEDGE
After the preparation of financial statements some of the accounts, (temporary in nature) has to be closed
at the end of the accounting period. Only those permanent accounts (real) are forwarded to the next
accounting period and another cycle of recording, classifying and summarizing has to be performed. That’s
why it is called cycle because of its repetition characteristics.
Closing Entries
Income, and Expenses are temporary accounts that facilitate the preparation of income statement for a
given accounting period. After the preparation of income statement at the end of each year, all accounts
that appear in the income statement are closed and the difference between revenue and expense (net
profit or loss) is transferred to the capital account. In other words, the capital may increase or decrease
depending on the result or performance of the entity. The process of transfer is called closing procedure
(This is step 7 in the accounting cycle). There is a need to prepare closing entries so that those temporary
accounts will be closed at the end of the period. Another temporary accounts that is close to capital is the
withdrawals made by the owner. This account always decreases the capital account.
Closing Entries for merchandising is similar to service concern with the exception of cost of sales
accounts which are not present in the service concern.
USING the income statement of CHA NOVELTY STORE in the previous illustration.
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How do you close the temporary or nominal accounts?
1. Debit all nominal accounts with normal credit balance. (All revenues have normal credit balance
therefore this account should be debited in closing entries.) The contra-revenue accounts have
normal debit balance therefore it is credited in closing entries.
Ex. Sales . . . . . . . . . P2,675,000
Sales Returns and Allowance 26,000
Sales Discount 23,000
Income Summary . . . . . . . . . . . .. 2,626,000
To close revenues
2. Credit all nominal accounts with normal debit balance. (All expenses have normal debit balance
therefore this account should be credited in closing entries.) The contra-cost accounts have credit
normal balance therefore, these are to be debited in closing entries. You may separate the closing
of cost accounts from the operating expenses. You remember the merchandise inventory set-up?
Cha Novelty Store chooses the closing entry method in setting up MDSE inventory end of
P532,000.
Journal Entry to set-up:

MDSE Inventory End . . . . . . . . 532,000
Income Summary P532,000
To set-up inventory end
Income Summary . . . . . . . . . . . . . . 2,144,000

Purchase Discounts . . . . . . . . . . . . 14,000
Purchase Returns and Allowances. 19,000
MDSE Inventory beg. . . . . . . . . . . . . . . . . . . . . . . P 627,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,512,000
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
To close cost of sales account
You can also combine the inventory set-up with the closing of cost of sales account.
Income Summary . . . . . . . . . . . P519,000

Salaries Expense. . . . . . . . . . . . . . . . . P 336,000
Rental Exp. . . . . . . . . . . . . . . . . . . . . . 26,000
Advertising Expense . . . . . . . . . . 61,000
Office Supplies Expense . . . . . . . . . . . . 53,000
Insurance Expenses . . . . . . . . . . . . . . 18,000
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Depreciation Expense . . . . . . . . . . . . 25,000

To close the expense accounts
3. Close the income summary account to capital. The balance of the income summary account is a
credit balance of P (credits P2,626,000 +P532,000). – (debits P2,144,000 + 519,000).
Income Summary . . . . . . . . P495,000
Cha capital . . . . . . . . . P 495,000
To close income summary to capital
4. Close the withdrawals to capital account

Cha capital. . . . . . . P87,000
cha drawing . . . . P87,000
To close withdrawals to capital
Record the Closing Entries in the General journal, then post to their respective General Ledger. After
posting you will notice that the account is already close because the total debit is now equal to the total
credit. The income summary account is also close because this is a temporary account.
Post-closing Trial Balance (8th step of the accounting cycle) see sample below
To ensure that all closing entries are properly posted and all balances of the real accounts are correct for
easy transfer to the next accounting period a post-closing trial balance is necessary.
This trial balance contains only balance sheet or permanent accounts such as Assets, Liabilities and ending
Capital balance.
Why do we have to prepare post-closing trial balance?
a. To prove the equality of debits and credits, and to ensure that the amounts forwarded to the next
accounting period are accurate.
b. For easy transfer and traceability of the accounts.
Below is the sample of Post-closing trial balance.
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Reversing Entries (RE) (9th step of the accounting cycle)
Reversing Entry (RE)– is a journal entry which is the exact opposite of a related adjusting entry made at
the end of the accounting period This is a technique in bookkeeping to simplify the recording of regular
transactions in the next accounting period. RE is normally prepared at the beginning of the next
accounting period. Therefore, this is the first entry that should appear in the general journal.
What adjusting entries are subject to reversing entries?
a. All accruals (Income and Expense) are to be reversed.

b. Deferrals of Income – if the AJE recognize liability
c. Deferral of Expense – if the AJE recognize the asset
Illustration of Reversing entry for accrual of expense and income
Ex.1 Accrued Expense AJE Dec. 31, 2019 Reversing Entry dated. Jan. 1, 2020
Salaries Expense. . . . . P 27,200 Salaries Payable. . . . P27,200
Salaries Payable . . . . . P27,200. Salaries Expense. . . . . . . P27,200
Ex. 2 Interest Receivable. . . . P 12,000 Interest Income . . . . . . P 12,000
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Interest Income . . . . . . . . . P12,000 Interest Receivable . . . . . P12,000
Illustration of Reversing entry for Deferrals of Income
Ex. 3 Rent Income. . . . . . . . . P 20,000 Unearned Rent . . . . . . . P20,000
Unearned Rent . . . . . . . . P20,000 Rent Income . . . . . . . . . . . P20,000
If the adjustment is:
Unearned Rent . . . . P xxx No reversing entry
Rent Income. P xxx
Illustration of Reversing entry for Deferrals of Expense
Ex. 4 Prepaid Insurance . . . . . P 15,000 Insurance Expense. . . . . . . . P15,000
Insurance Expense. P15,000 Prepaid Insurance . . . . . . . . . P15,000
If the adjustment is:
Insurance Expense . . . . . P xxx No reversing entry
Prepaid Insurance . . . . . Pxxx
SELF HELP: You may also refer to the sources below to help you further understand the lesson
•Ballada, Win & Ballada, Susan (2019), Basic Financial Accounting and Reporting. Sampalok
• Heintz, James A. (2017). College Accounting 22nd Edition. Australia: Cengage Learning
• Philips,Fred (2016). Fundamentals of Accounting. McGraw Hill Education
• Warren, Carl S.(2016). Accounting 26th Edition. Australia: Cengage Learning
• Wild, John J. (2016). Fundamentals Accounting Principles. New York NY: McGraw Hill
Education.
LET’S CHECK note this is excluded in the SIM for ACC 111 but included in Project write.
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Activity 35. You have now completed the nine steps of the accounting cycle. Let us check your
understanding on the last 3 step of the accounting process. On the space provided identify the term being
described or determine the correct procedure done in closing entries.
1. _________ procedure done at the end of the period to close temporary accounts.
2. In closing revenue we simply ____________ and ____________ income summary.
3. In closing withdrawals account it is place on _______________ and ___________ capital account.
4. In closing expenses account the entry is _________ the individual expenses and _______ income
summary.
5. When income summary resulted to a credit balance this means that _________ is greater than
__________.
6. A trial balance comprise of permanent accounts is called ___________.
7. If revenue is less than the expenses, then income summary will result to a ______ balance.
8. What account that absorbs the movement of revenue, expenses and withdrawal in a closing
entry? _______________.
9. The balance of the Income Summary after closing the Revenue and Expenses is a credit balance,
this means the performance of the entity is a _________.
10. If the entity incurred a net loss, the Income Summary account will be closed by a ______ and
capital will be placed on the _________.
LET’S ANALYZE
Activity 36.
Answer the following problems
1. Assume that CBG merchandising had a total sales of P2,500,000; sales returns and allowances of
P35,000; and sales discount of P15,000; prepare the closing entry.
2. Assume further that the inventory beginning of CBG merchandising is P 120,000; inventory end is
P230,000; total purchases is P P1,870,000; purchase return and allowances P20,000; and purchase
discount of P25,000. Prepare the closing entry.
3. Assume that the total operating expenses is P550,000, how much is the balance of income
summary account.
4. Close the income summary account to capital.
5. CBG withdrawal is P60,000, prepare closing entry to close the withdrawal.
Activity 37. In this activity you need to identify the adjusting entry that can be reversed at the start of the
next accounting period. Write the reversing entry (if applicable) or “NO RE” if not applicable.
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IN A NUTSHELL
Activity 38. Knowing the sequential step of the accounting cycle is not enough. But the most important
part is how this knowledge can be used to analyze an account and develop a more comprehensive
understanding of the process. For example a capital account ledger. Capital is a permanent account and
this is used throughout the year because it explains the movement (in and out) of the capital or equity of
the owner.
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What do the figures in the account represent?
The P120,000 dated 1.1.19 represents the beginning balance of the capital of the owner.
The 30,000 dated 3.31.19 represents the additional capital invested by the owner.
The P80,000 dated 12.31.19 represents a closing entry to close the net profit earned by the entity to
capital account
The 50,000 (debit side) dtd. 12.31.19 represents and entry in the closing entry which is to close
withdrawals made by the owner
Therefore, the ending balance of the capital account is P180,000 credit balance.
IN A NUTSHELL
YOUR TURN
I have done the analysis of the capital ledger, below is a ledger of an account “Income Summary” with an
entry on the debit (Left) and credit (right) side of the account give your analysis by answering questions 1
to 4.
1. The Income Summary account is normally seen during _______________.

2. What do the figures in the account represent? (Debit and Credit side)
3. What is the performance of the entity?
4. Prepare a closing entry to close the Income Summary Account.
49
Matina, Davao City
Phone No.: (082)300-5456 Local 137
raised.

10.
11.
12.
13.
14.
KEYWORDS INDEX
1. Requisites of goof form financial statements

2. Steps in worksheet preparation 8. Real Accounts
3. Adjusted Trial Balance 9. Nominal Accounts
1. Footing 10. Income Statement
2. Cross-footing 11. Statement of Financial Position
3. Single-step format 12. Statement of Changes in Equity
4. Report Form
COURSE SCHEDULES
Activity Date of Submission Where to Submit

Let’s Check : Activity 35 LMS
Let’s Analyze: Activity 36 LMS
In a Nutshell: Activity 37 & 38 LMS
Q&A Forum/virtual session
Online Code of Conduct
1. Students are expected to abide by and honor code of conduct, and thus everyone
and all are exhorted to exercise self-management and self-regulation.
2. All studentss are guided by professional conduct as learners in attending On-Line
Blended Delivery (OBD) course. Any breach and violation shall be dealt with properly
50
Matina, Davao City
Phone No.: (082)300-5456 Local 137
under existing guidelines, specifically in Section 7 (Student Discipline) in the Student

Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core
Values, specifically in the adherence to intellectual honesty and integrity; academic
excellence by giving due diligence in virtual class participation in all lectures and
activities, as well as fidelity in doing and submitting performance tasks and
assignments; personal discipline in complying with all deadlines; and observance of
data privacy.
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The
University shall institute monitoring mechanisms online to detect and penalize
plagiarism.
5. Students shall independently and honestly take examinations and do assignments,
unless collaboration is clearly required or permitted. Students shall not resort to
dishonesty to improve the result of their assessments (e.g. examinations,
assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students
shall not post or share their answers, assignment or examinations to others to further
academic fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the
Online Code of Conduct, as well as all the requirements and protocols in handling
online courses.
Course prepared by:
DEAN ESTERLINA B. GEVERA,MBA,CPA

Author
Course reviewed by:
DEVZON U. PORRAS JADE D. SOLAÑA

PH-BSAIS/BSIA PH-BSA/BSMA
MARY GRACE S. SOMBILON

AD
51
Matina, Davao City
Phone No.: (082)300-5456 Local 137
Approved by:
LORD EDDIE I. AGUILAR

Dean
52

SIM ACC 111 Financial Accounting and Reporting 1

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SIM ACC 111 Financial Accounting and Reporting 1

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UNIVERSITY OF MINDANAO

College of Accounting Education

Program: BSA, BSIA, BSMA, BSAIS

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACC 111 – Financial Accounting and Reporting

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR REPRODUCTION

THIS IS NOT FOR COMMERCIAL USE.

Big Picture: Week 10-12 Unit Learning Outcomes 1

Big Picture in Focus: Unit Learning Outcome I & J 1

Big Picture in Focus: Unit Learning Outcome K 12

Big Picture in Focus: Unit Learning Outcome L 26

Online Code of Conduct 50

Course Outline : ACC 123– Cost Accounting and Control

Course Coordinator: Esterlina B. Gevera,MBA,CPA

Course Outline Policy

Areas of Concern Details

Assessment Task Submission Submission of assessment tasks shall be on 3rd, 5th,

If the assessment task is done in real time through

Since this course is included in the licensure

Please note that academic dishonesty such as

However, if the late submission of assessment

For group assessment tasks, the course coordinator

If disapproved by the course coordinator, you can

Grading System All culled from BlackBoard sessions and traditional

All culled from on-campus/onsite sessions (TBA):

Submission of the final grades shall follow the usual

Preferred Referencing Style Harvard Referencing Style

Student Communication You are required to create a umindanao email

You can also meet the course coordinator in person

For students who have not created their student

Contact Details of the Asst. Asst. Dean Mary Grace S. Sombilon

Mr. Devzon U.Porras

Mr. Jade D. Solaña

Library Contact Brigida E. Bacani

For inquiries, you can email at

GSTC Facebook Page:

Course Information – see/download course syllabus in the Black Board LMS

How to compute cash discounts?

How to compute trade discounts?

QUESTION AND ANSWER PORTION:

Do you have any questions for clarification?

1. Source Documents 7. Sales

Activity Date of Submission Where to Submit

1. COD – refers to terms which means “Cash on Delivery”

How to record revenue and collection cycle transactions?

Assume the following transactions of EBG Trading.

Journal entry: To record the payment of freight

What if collection is beyond the discount period?

What if collection is beyond the discount period?

Accounts Receivable . . . . P3,700

Collection of account within the discount period.

What if collection is beyond the discount period?

How to record purchase of MDSE and payment cycle transactions?

Assume the following transactions of EBG Trading.

Using the periodic inventory system the;

Journal Entry: To record the freight:

What if payment is made beyond the discount period?

What if collection is beyond the discount period?

Journal entry for the freight

What if payment is made beyond the discount period?

Purchase Discount . . . . . . . . 1,160

What if payment is made beyond the discount period?

MDSE VS. NON-MDSE