909Merchandizing business:

 A merchandizing business usually purchases its merchandise in a form

ready for sale.
 Merchandize Inventory reports the cost assigned to unsold units left on
hand
 Only one inventory account appears in the financial statements.

Merchandize Inventory :
Definition of Inventories PAS 2
Assets that are:
(1) Held for sale in the ordinary course of the business
 Mostly in trading or merchandising business.
(2) In the process of production in such sale
 Manufacturing
 Raw materials
 Work in process
 Finished goods
(3) In the form of materials or supplies to be consumed in the production
process or in rendering service. (Manufacturing)
 Office supplies
 Factory supplies

Flow of costs in merchandizing business:

Beginning inventory
 Value or amount of inventory at the start of the period.
 It is the ending merchandise inventory value from the previous period.

Purchases
When you buy merchandize to supermarket or manufacturer

Goods available for sale

You have now stock’s ready for business

Ending Inventory
Merchandise inventory left unsold.

COST of Goods Sold

The direct costs attributable to the production of the goods sold in a company. 
This amount includes the cost of the materials used in creating the good along with the direct
labor costs used to produce the good.
Measurement:
 How much is the amount to be recorded in the journal and ledger
There are two types of measurement:
(1) Initial Measurement
The amount recorded in journal entry
We recognize inventory at cost
Cost = The amount of asset and liability on the basis of acquisition.
Cost of Inventory is sub divided into three:
Cost of purchase
Purchase price = price of acquisition
Taxes: Indirect Tax
- Import duties
- VAT = Added in the cost of inventory or cost of purchase in
inventory.
Discount:
- Trade Discount
- Cash discount
Freight or Delivery:
- Freight in = Shouldered by the buyer
= Transportation in
- Freight out = shouldered by the seller
= delivery fee of purchased supplies etc.
= Transportation out
Cost of conversion
Pertains in manufacturing
Raw materials
Direct labor
Manufacturing overhead
 Other cost
Bringing to present location = Delivery expense or freight
(2) Subsequent Measurement
Later on how much is the amount to be presented in Financial
Statement or specifically in balance sheet.
We recognize the measurement or the amount through lower cost
or net realizable value.
Why do we have lower cost or net realizable value in inventory? The
reason is, there are inventories habang tumatagal it decreases the
value or selling price.
Example: The iphone due to the latest released unit the older unit
decreases price or the value in the market.
Accounting for inventories:
Periodic Inventory System
Accounting of unsold inventory every end of the period (Once a year)
Applied in business that has many items with small value
Use nominal accounts (Expense)
Fast moving goods
High inventory turnover (mabilis mabenta)
Usually used by super markets, drug store, and department store

Perpetual Inventory System

Continues update or counting of inventory (Using stock Card)
Default method of inventory system in manufacturing
Use asset account (inventory)
Using stock cards
Few items but high value
Slow moving goods
Low inventory turnover (mabagal mabenta)

Contra Accounts:
Sales Return [Grab your
Journal reader’s
Entry: POV attention
Sellerwith a
great quote from the document or
Contra sales account Perpetual Inventory
use this space System
to emphasize a key
Deducted in Sales point.
Dr. To place
Sales Returnthis text box anywhere
XXX
on the page, just drag it.]
Purchases Return Cr. Accounts Receivable
XXX
Contra purchase account Journal Entry: POV Buyer

Deducted in Purchases Perpetual Inventory System

Dr. Accounts payable XXX
Cr. Merchandise Inventory
XXX
Journal Entries for Merchandising
Periodic Inventory System

POV of Seller POV of Buyer

Sale of goods on credit 2/10, N/30, Purchase of goods on credit 2/10,
P100. Cost P80 n/30, P100
Dr. Accounts 100 Dr. Purchase 100
Receivable Cr. Accounts Payable 100
Cr. Sales 100 Payment of Supplier Within the
Collection from customer within the discount period
discount period. Dr. Accounts 100
Dr. Cash 98 Payable
Dr. Sales Discount 2 Cr. Cash 98
Cr. Accounts 100 Cr. Purchase 2
Receivable Discount
Assuming 10 worth of purchased Assuming 10 worth of purchased
goods is defective and returned to goods is defective and returned to
supplier. supplier.
Dr. Sales Return and 10 Dr. Accounts 10
Allowances Payable
Cr. Accounts 10 Cr. Purchase 10
Receivable Returns and
Paid delivery Allowances
Dr. Freight XXX Paid delivery
out/Transportation Out Dr. Freight XXX
Cr. Cash XXX In/Transportation In
Cr. Cash XXX
 Perpetual Inventory System

POV of Seller POV of Buyer

Sale of goods on credit 2/10, N/30, Purchase of goods on credit 2/10,
P100. Cost P80 n/30, P100
Dr. Accounts 100 Dr. Merchandise 100
Receivable inventory
Cr. Sales 100 Cr. Accounts Payable 100
Dr. Cost of Goods 80 Payment of Supplier Within the
Sold discount period
Cr. Merchandise 80 Dr. Accounts 100
Inventory Payable
Collection from customer within the Cr. Cash 98
discount period. Cr. Merchandize 2
Dr. Cash 98 Inventory
Dr. Sales Discount 2 Assuming 10 worth of purchased
Cr. Accounts 100 goods is defective and returned to
Receivable supplier.
Assuming 10 worth of purchased goods is Dr. Accounts 10
defective and returned to supplier. Payable
Dr. Sales Return and 10 Cr. Purchase 10
Allowances
Dr. Merchandise 8
Returns and
Inventory Allowances
Cr. Accounts Receivable 10 Paid delivery
Cr. Cost of goods sold 8 Dr. Freight XXX
Paid delivery In/Transportation In
Cr. Cash XXX
Dr. Freight XXX
out/Transportation Out
Cr. Cash XXX
How to compute
inventory/unsold/or ending inventory:
Cost of goods sold
Stock card
In = Purchases
Out = Sale/sold
Bal = Outstanding balance

In Out Bal
Date Qty. Price Amount Qty. Price Amount Qty. Price Amount
10/1 100 P20 P2,000
10/4 20 P20 P400 120 P20 P2,400
10/5 10 P20 P200 110 P20 P2,200
Ending Inventory: Beg Inventory P2,000
110*P20=2,200 Purchases P400
Goods av for sale P2,400
Less: ending inv P2,200
Inventory P400
COGS P200
AP 400
Sales P25/pc
AR (25*10) P250
Sales P250
COGS P200
Inventory P200
 Discounts:
Trade Discount
Not separately shown in the books of account.
All net amount after discount are recorded in the subsidiary books of
accounting.
A reduction granted by a supplier of goods/services on the price of goods
supplies.
Provided due to business consideration such as trade practices, large
quantity orders, market competition, etc.
Immediately deducted.
Terms
List price
- Price in catalogue, manufacturer recommended price
Net price (Invoice price) = list price – trade discount
Rate of trade discount = trade discount / list price
(1)Example:
List price: P1,500 (2)Example:
List price is P2,500 subject to 10%
Trade discount: 20%
and 5% trade discounts.
Bought on credit: 2/10, n/30 
1. Trade discount: P1,500 x 20% = P300 1.Net price: 
Net price: P1,500 - P300 = P1,200  P2,500 x 90% = P2,250, P2,250 x 95%
= P2,137.50 = net price
2. Cash discount: 1,200 x 2% = 24  
Total trade discount: Equation
3. What is the amount to be paid? P2,500 - P2,137.50 = P362.50 
Within the discount period?  Pn = Pl (1 - d1)(1 - d2) .... (1 - dn) 
1,200 - 24 = P 1,176 Pn = P2,500 (1 - 0.10)(1 - 0.05) 
Pn = P2,137.50 
Note:      2/10, n/30  

Net price is what will be recorded in Cash discount: 2,137.50 x 2% = 42.75

journal entry. Journal Entry:
Dr. Purchases 2,137.50
 Cash Discount
Cash discount is a deduction allowed by a supplier of goods or by
provider of service to the buyer from invoice price
Provided an incentive or motivation in return for paying a bill within a
specific time.
Cash discount is shown separately in the books.
It is shown as an expense in the income statement.
Conditional - will be deducted if you paid within discount period.
Cash discount = 2/10, 3/15, etc.

(1)Example (2)Example:
Bought on credit: 2/10, n/30  List price is P2,500 subject to 10% and 5%
2. Trade discount: P1,500 x 20% = trade discounts 
P300 2.Net price: 
Net price: P1,500 - P300 = P1,200  P2,500 x 90% = P2,250, P2,250 x 95% =
P2,137.50 = net price
4. Cash discount: 1,200 x 2% = 24  
Total trade discount: P2,500 - P2,137.50 =
5. What is the amount to be paid? P362.50 
Within the discount period?  Pn = Pl (1 - d1)(1 - d2) .... (1 - dn) 
= 1,200 – 24 = P1,176 Pn = P2,500 (1 - 0.10)(1 - 0.05) 
Pn = P2,137.50 
     2/10, n/30  
     Cash discount: 2,137.50 x 2% = 42.75

Note:
- The cash discount is based on the net price
- Cash discount multiply by discount rate is what will be recorded as
purchase discount.

Other terms:
1/10, EOM = End of the month
= 1% discount if paid within first 10 days of next month.
n/10, EOM = Net amount due within the first 10 days of next month.
 Inventory Valuation
Physical goods to include in inventory
Goods in transit
- Goods on consignment
- Special arrangement
Revenue recognition in merchandise business:
- Revenue account = Sales
- Transfer of ownership from seller to buyer
Types of FOB or Freight on Board
FOB shipping point

-Ownership is transferred from seller to buyer at the point of

origin.
-When the goods leave the warehouse there is already a transfer of

Example Problem:
Selling price: 60,000
Freight expense: 500
Seller is in Manila
Buyer is in Cebu
Merchandise is shipped by seller on Sep 28, 2022
Merchandise is received by buyer on October 3, 2022
-
-
-
-
-
-
-
Example: FOB shipping point Example: FOB shipping point
POV of Seller POV of Buyer
09/23/2022 09/23/2022

AR 60,000 Purchases 60,000

Sales 60,000 AP 60,000

Freight in 500
Cash 500

FOB destination

- When to recognize sale or purchase?

- Ownership is transferred from seller to buyer at the point of
arrival.

Example: FOB Destination Example: FOB Destination

POV of Seller POV of Buyer
10/3/2022 10/3/2022
AR 60,000 Purchases 60,000
Sales 60,000 AP 60,000
Freight Out 500
Cash 500

Freight prepaid
- Will give rise to four cases
- Freight paid by Seller in advance
Example Problem:
Selling price: 60,000
Freight expense: 500
Seller is in Manila
Buyer is in Cebu
Merchandise is shipped by seller on Sep 28, 2022
Merchandise is received by buyer on October 3, 2022
 Case 1: FOB SP, Freight Prepaid Case 1: FOB SP, Freight Prepaid
POV of Seller POV of Seller
9/28/2022 9/28/2022
AR 60,000 Purchases 60,000
Sales 60,000
AP 60,000
AR 500
Cash 500 Freight In 500
AP 500
Freight collect
- The buyer paid the delivery fee upon arrival of goods (COD

Case 2: FOB SP, Freight Collect Case 2: FOB SP, Freight Collect
POV of Buyer
POV of Seller
9/28/2022
9/28/2022
Purchases 60,000
AR 60,000
AP 60,000
Sales 60,000
Freight in 500
No entry for FOB SP, Freight Collect
Cash 500
 FOB Destination
- We recognize sale upon delivery

Case 3: FOB Destination Case 3: FOB Destination, Freight

Freight Prepaid Prepaid
POV of Buyer
POV of Seller
10/3/2022
10/3/2022
Purchases 60,000
AR 60,000
AP 60,000
Sales 60,000
No entry: for freight prepaid FOB
Freight Out 500
destination. Because the seller will
Cash 500
shoulder the freight expense.
Freight collect
- The buyer paid the delivery fee upon arrival of goods (COD
- Offsetting is allowed because seller and buyer is the same person
= Compensation under business law.

Case 3: FOB Destination Freight Case 3: FOB Destination, Freight

Collect Collect
POV of Buyer
POV of Seller
10/3/2022
10/3/2022
Accounting Textbook Balada Purchases 60,000
AR 60,000
AP 60,000
Sales 60,000
AR 500
Freight Out 500
Cash 500
AP 500
 - Equals to Compound Entry

Case 3: FOB Destination Freight Case 3: FOB Destination, Freight

Collect
\ Collect
POV of Seller POV of Buyer
10/3/2022 10/3/2022
AR 59,500 Purchases 60,000
Freight Out 500 AP 59,500
Sales 60,000 Cash 500

Financial Statement in Merchandise business:

Income Statement:
Net Sales XXX
Less: Cost of Goods Sold (XXX)
Gross Profit (Tubo) XXX
Less: Operating Expenses (XXX)
Net Income

Computation of Net Sales:

Gross Sales/Sales XXX
Less: Sales Discount (XXX)
Less: Sales Return (XXX)
Net Sales

Computation of Cost of Goods Sold/COGS:

Beginning Inventory XXX
Add: Net purchases XXX
Add: Freight In XXX Computation of Net Purchases
Less: Purchase Discount (XXX) Gross purchases XXX
Less: Purchase Returns (XXX) Add: Freight In XXX
Goods available for sale XXX Lee: Purchase Discount (XXX)
Less: Ending Inventory (XXX) Less: Purchase Return (XXX)
Net Purchases
Cost of goods sold

Gross Profit Note:

Net Sales XXX Net Purchases - Purchases
Less: Cogs (XXX) discount and purchase return
Gross Profit

Gross Profit Ratio

= Gross Profit / Net Sales X 100

Discussion 2:
Inventory Valuation
 Physical goods to include in inventory
 Goods in transit
 Goods on consignment Will be discussed in conceptual frame work
 Special arrangement

Inventory Cost Flow

 Weighted Average
We get the average in cost per unit of the merchandise.
There is two method; Weighted average periodic and weighted
average perpetual.
Weighted Average Periodic:
 Minsanan lang kunin ang average cost (once a month etc.)
 Total or balance/Qty.
Demonstration Problem
Purchase Sales
Date Qty. Cost Total Date Qty. Cost Total
10/1/222 500 100 50,000
10/4/22 500 125 62,500
10/7/2 600
2
10/10/22 400 150 60,000
COGS: Units Amount
Purchases 1,400 172,500
Goods Avail for Sale 1,400 172,500
Less; Ending Inventory 800 98,574
Cost of goods sold 600 73,926.57

Weighted Average Perpetual (Moving average method):

 To get the Average cost divide the balance/total in qty.
 Every purchase we get the average cost per unit
Demonstration Problem

600
Purchase
Date Qty. Cost Total
10/1/222 500 100 50,000
10/4/22 500 125 62,500
10/10/22 400 150 60,000
Balance 1,400 123.21 172,500
10/7/22 600 123.21 73,926
Balance 800 123.21 98,574.57
 2
10/10/22 400 150 60,000

Purchases
Date Qty. Cost Balance
10/1/22 500 100 50,000
10/4/22 500 125 62,500
1,000 112.5 112,500
Will be reported as Cost of goods sold/sale (COGS)
10/7/22 600 112.5 67,500
400 112.5 45,000
10/10/2 400 150 60,000
2
COGS 800 131.25 105,000

In reporting:
COGS: Units Amount
Add: Purchases 1,400 172,500
Goods Avail for Sale 1,400 172,500
Less; Ending Inventory 800 105,000
Cost of goods sold 600 67,500

 Frist in first out (FIFO)

 We do not compute for the average cost per unit.
 First batch of inventory will be the first to be sold.
 Computing the end inv. Last purchased and second to the last.

Purchase Sales
Date Qty. Cost Total Date Qty. Cost Total
10/1/222 500 100 50,000
10/4/22 500 125 62,500
10/7/2 600
2
10/10/22 400 150 60,000

Purchases
Date Qty. Cost Balance
10/1/22 500 100 50,000
10/4/22 500 125 62,500
COGS
First Batch 500 100 50,000
Second Batch 100 125 12,500
Sales: 600 225 62,500
Balance 400 125 50,000
10/7/22 400 150 60,000

In Report:
COGS: Units Amount
Add: Purchases 1,400 172,500
Goods Avail for Sale 1,400 172,500
Less; Ending Inventory 800 110,000
Cost of goods sold 600 62,500

Computation of Ending Inventory:

Ending Inventory
Last purchased 400 150 6000
Second the last 400 125 50,000
Balance 800 110,000

 Specific Identification
 Normally used in highly customized merchandise
 Typical in Manufacturing Business
 Each order is highly customized or highly detailed
 That is why they have special recording
  Job order has a separate record keeping kaya tinawag na specific
identification.
 Other Method in Inventory cost flow that is available in internet is the Last
in First Out (LIFO Method). But this is not allowed under international
accounting standard.

Note: Whichever method of inventory system is used there is always a need

to do physical count. For the following reasons:
1) To detect theft, losses, and spoilage in inventory.
2) To test the reliability and accuracy of inventory records.
3) To determine when to order for supplies of inventory.
Ending inventory errors:
Frist Scenario: Ending Inventory is understated
What will be the effect in cogs and net income?
Ending Inventory is under stated, cogs is overstated, gross profit
understated and net income understated
Report:
Beginning inventory 50,000 50,000
Purchases 200,000 200,000
Goods Available for Sale 250,000 250,000
Less: Ending Inventory 40,000 30,000 Understated
COGS 210,000 220,000 Overstated

Sales 400,000 400,000

Less: COGS 210,000 220,000
Gross profit 190,000 180,000 Understated
Less: Operating expenses 70,000 70,000
Net income 120,000 110,000 Understated
Second scenario: Ending inventory overstated
What will be the effect in cogs and net income?
Ending inventory overstated, cogs understated, gross profit overstated and net
income overstated.
Report:
Beginning inventory 50,000 50,000
Purchases 200,000 200,000
Goods Available for Sale 250,000 250,000
Less: Ending Inventory 40,000 45,000 Overstated
COGS 210,000 205,000 Understated

Sales 400,000 400,000

Less: COGS 210,000 205,000
Gross profit 190,000 195,000 Overstated
Less: Operating expenses 70,000 70,000
Net income 120,000 125,000 Overstated

Beginning Inventory Errors:

 Third scenario: Beginning inventory overstated
What will be the effect in cogs and net income?
Beginning inventory overstated, cogs overstated, gross profit under stated, and
net income understated
Report:
Beginning inventory 50,000 51,000 Overstated
200,00
Purchases 200,000 0
251,00
Goods Available for Sale 250,000 0 Overstated
Less: Ending Inventory 40,000 40,000
211,00
COGS 210,000 0 Overstated

400,00
Sales 400,000 0
Fourth scenario: Beginning inventory overstated 211,00
Less: COGS
What will be the effect in cogs and net income? 210,000 0
189,00
beginning inventory understated, cogs, under stated, gross profit overstated, and
Gross profit 190,000 0 Understated
net income overstated
Less: Operating expenses
Report: 70,000 70,000
Beginning 119,00
Net incomeinventory 50,000
120,000
49,000 Understated
0 Understated
Purchases 200,000 200,000
Goods Available for Sale 250,000 249,000 Understated
Less: Ending Inventory 40,000 40,000
COGS 210,000 209,000 Understated

Sales 400,000 400,000

Less: COGS 210,000 209,000
Gross profit 190,000 191,000 Overstated
Less: Operating expenses 70,000 70,000
Net income 120,000 121,000 Overstated

Last Scenario:
Report:
Beginning inventory 50,000 50,000
Purchases 200,000 199,000
Goods Available for Sale 250,000 249,000
Less: Ending Inventory 40,000 39,000
COGS 210,000 210,000

Sales 400,000 400,000

Less: COGS 210,000 210,000
Gross profit 190,000 190,000
Less: Operating expenses 70,000 70,000
Net income 120,000 120,000

Balance Sheet
Inventory

Total current assets

Scenario: hindi nabenta yung inventory

What if purchases is understated 1,000?
What will be the effect in cogs and net income?
There is no effect in cogs and net income
But it has an effect in balance sheet
Therefore, balance sheet understated
Balance Sheet T-Accounts in
merchandising:
Purchases/Inventory
Understated
Accounts payable
Purchase of Inventory Purchases
Accounts Dr Cr
payable Purchase
Dr Cr s XXX
Beg XXX Sales
XXX Bal
Purchases on
Payment to supplier XXX XXX credit
Purchase Returns XXX
XXX Ending Balance

How much is purchases (Accrual basis)?

How much is the payment to suppliers?

Sale of goods:
Accounts
receivable
Dr Cr
Beg Bal XXX
Collection from
Sales on credit XXX XXX customer
XXX Sales Return
Write
XXX Off
Ending balance XXX

Sales
Dr Cr
Sales on
XXX credit
Sales discounts XXX
XXX

How much sales (Accrual basis)?

How much is collection from customers (Cash basis)?
Operating Expenses:
Selling Expenses
- Are the cost associated with distributing,
marketing and selling a product or services.
-Freight Out is the delivery expense paid by seller.
- Commission Expense is part of marketing
- Depreciation expenses of store shelves and store
equipment
- Slotting Fee also refer to as a shelves fee
-Advertising and promotion expense
General and Administrative
- Cost of administering business in general
- All expenses that is not considered as selling
expenses.
- Example. Rental of admin office, general manager,
accounting dep
- Depreciation expense of equipment used by admins

Value-added tax (VAT)

VAT is business tax/consumption tax
Separate from income tax
Basic Computation
PX
Output VAT X
(XX
Less: Input VAT )
Vat payable XX

Example:
Output VAT
12% VAT on sale of goods (at least annual sales of 3,000,000)
Amount indicated in the invoice is vat inclusive
Output VAT:
10/07/2022 Sales of goods 36,000 per invoice (VAT inclusive)
Dr. Cash/AR 336,000
Cr. Output VAT 36,000
Cr. Sales 300,000
Computation of output VAT
Amount of sales/1.12*12%
Input VAT
12% VAT on purchase of goods
10/15/2022 Purchased of goods 210,000 per invoice of supplier
Dr. Purchases 187,500
Dr. Input VAT 22,500
Accounts Payable 210,000
Computation of Input VAT
Accounts payable/1.12*12%
Note we will record the purchases less the Input VAT

VAT Payable Every Month End set up of VAT payable

Monthly remittance in BIR

Set up of VAT payable

10/13/2022 Dr. output Vat 36,000
Cr. Input VAT 22,500
Cr. VAT payable 13,500

Basic Computation
Output VAT 36,000
Less: Input VAT 22,500
Vat payable 13,500

Dedit Memo
- Cost decrease in account Balance
- To decrease account balance
Credit Memo
- Cost increase in account balance
- To increase account balance
 Special Journal
Objective: To make bookkeeping and recording at transactions more
efficient.
4 Special Journals:
Sales Journal
SALES JOURNAL
Debit Credit Credit

Date Invoice No. Customer Name Accounts Receivable Output VAT Sales

02/10/2022 151 Mr. Jimin 20,000.00 20,000.00

02/10/2022 152 Mr. Jimin 17,500.00 2,100.00 15,400.00
10/11/2022 153 Park Sooyoung 28,000.00 3,000.00 25,000.00
10/11/2022 154 Kim Namjoon 17,500.00 17,500.00
10/12/2022 155 Kim Dahyun 35,000.00 35,000.00
10/12/2022 156 An Yujin 38,500.00 4,125.00 34,375.00
TOTAL 156,500.00 9,225.00 147,275.00
- Record all sales on credit or credit sales

Purchase Journal
- Exclusively for purchases of inventory on account.
- The amount recorded in accounts payable is the VAT
inclusive it is the invoice of supplier
PURCHASE JOURNAL
Debit Credit
Date P.O Number Supplier Name Purchases Input VAT Accounts Payable
01/10/2022 221 YG Company 61,600 8,400 70,000
01/10/2022 222 JYP Company 70,000 70,000
10/11/2022 223 YG Company 37,500 4,500 42,000
10/11/2022 224 JYP Company 20,000 20,000
10,000 1,200 11,200
TOTALS 199,100 14,100.00 213,200
Cash receipt Journal
- Used to record all sales in cash
- All cash received
CASH RECEIPT JOURNAL
Debit Credit
Outpu
Date OR Sales t Sundries Dr. Cr
No. Name Ref Cash Disc Sales A/R VAT (Other Acct)
05/10/202 AE
2 250 Jenny 1 7,000 6,250 750
12/10/202 Jimin 37,50
2 251 Park 36,750 750 0
10/11/202 12,50
2 252 Seulgi 14,000 0 1,500
10/11/202 Cheayon 20,00
2 253 g 20,000 0
10/11/202 Kim 30,00
2 254 Jiwoo 29,400 600 0
10/11/202 Purchase
2 255 JYP Ent. 1,000 Ret 1,000
10/12/202 Woyoun 16,00
2 256 g 16,000 0

10/12/202 Cheayon 25,00

2 257 g 28,000 0 3,000
10/12/202 Jungkoo 17,50
2 258 k 17,500 0
10/12/202 Cheayon 1,12 56,00
2 259 g 54,880 0 0

224,53 59,75
TOTAL 0 2470 0 2E+05 5,250 1,000

Ex. Cash sales, collection from customers

Collection within discount: 56,000
2/10,
n/30
Sales discount:
56,000*2%=1,120
Cash receieved or the net cash amount: 56,000-1,120 =
54,880
 Cash Disbursement Journal
- All cash payment (Credit to cash)
CASH DISBURSEMENT JOURNAL
Vouche Input
r Check Name Credit Debit Sundries
Purchase VAT Other
Date No. No. Payee Cash disc Purchase A/P Acct. Dr . Cr.
YG
10/10/22 1021 30601 Company 68,600 1,400 70,000
JYP
10/10/22 1022 30602 Company 68,600 1,400 70,000
Various Salaries
10/15/22 1023 30603 employee 15,000 expense 15,000
Utilities
10/16/22 1024 30604 MERALCO 5,000 expense 5,000
YG
11/10/22 1025 30605 Company 20,000 20,000
JYP
11/10/22 1026 30606 Company 10,000 10,000
11/10/22 1027 30607 SM Ent. 19,600 400 20,000
Taxes
And
11/10/22 1028 30608 BIR 2,000 license 2,000
JYP
11/12/22 1029 30609 Company 20,000  20,000
YG
11/12/22 1030 30610 Company 22,400 20,00 2,400
SY Dev
11/16/22  1031 30611 Corp 10,000  10,000
YG
11/17/22 1032 30612 Company 19,600  400 20,000
Manila Utilities
11/17/22  1033 30613 Water 1,000 exp  1,000
Salaries
11/17/22  1034 30614  Payroll  39,600 expense 40,000
W/Tax 200
SSS payab 200
TOTAL 208,800 3,200 20,000 170,000 33,000 500
- Cash purchases, payment to supplier, and other accounts like
operating expenses, rent, and salaries expenses,
Paano pag may down payment?
Purchase of inventory: total purchase 50,000
10% down payment
GJ: Purchases 50,000
Purchase Journal
A/P 50,000
A/P 10,000
Cash Disbursement Journal
Cash 10,000

General Journal
- Transactions that is not applicable in the four special journal, will
be recorded in general journal.
- All adjusting entry, closing, and reversing is still journalized in
general journal.
General Journal
Date Account Title Ref Dr. Cr.
13/10/2022 Office Furniture 10,000
Accounts Payable 10,000
Purchase of office equipment on
account
#
15/10/2022 Accounts Payable 1,000
Purchase Returns 1,000
Purchase Return
#
15/10/2022 Sales Return 500
Accounts Receivable 500
Sales Return
#
3rd Step: Posting to General Ledger (Merchandise Business)
- Only the total balances of accounts on special journal will be
recorded in the general ledger.
Every entry on special journal must be posted in subsidiary ledger.
4th Step: Trial Balance:
5th Step: Adjusting Entries: Merchandising
Additional Adjusting
1.Ending Inventory:
Periodic System Annual Physical Count.
Adj: Dr. Merchandise Inventory 12/31 Pxx
Cr. Income Summary Pxx
Perpetual System Continues tracking or updating on M. Inventory
There is no need to credit income summary because every transaction we the
merchandise inventory is updated.

2.Bad Debts Expense

Two methods of recording bad debts:
A. Direct Write Off
- Not in accordance with BFRS or the accounting standards
- Use for taxation percentage
- Estimate percentage of bad debts uncollectible
- No entry for estimation of bad debts
- There will only be an entry one we write off of Accounts
Receivable.
 - Entry: Dr. Bad Debts Expense Pxx
Cr. Accounts Receivable Pxx

B. Allowance Method
- Prefer by BFRS or the accounting standards.
- Set up of bad debts (estimated bad debts expense)
- GJ: Dr. Bad debts expense Pxx
Cr. Allowance for bad debts Pxx
- Despite the best effort wala ng masingil we will write off
Write off of accounts receivable
Adj: Dr. Allowance for Bad debts Pxx
Cr. Accounts Receivable Pxx
Methods of estimating bad debts (set-up)
1. Percentage of Accounts Receivable
2. Percentage of Sales
3. Aging of Accounts Receivable

Scenario 1: Percentage of Accounts Receivable

Sales: P800,000
Accounts Receivable ending balance: P500,000
Allowance for Bad Debts beginning balance: P5,000
Write off of accounts receivable: P10,000
% of uncollectible: 3% of ending A/R
Computation: 500,000*3% = 15,000 => Required ending balance of
allowance for bad debts.
a. Bad debts expense?
b. Ending Balance allowance accounts?
c. What is the adjusting entries 12/31?