POST TRANSACTIONS (PT), PREPARE TRIAL BALANCE (PTB)

PREPARE FINANCIAL REPORTS (PFR), REVIEW INTERNAL CONTORL SYSTEM (RICS)

Trainer: Miss Sweetzel A. Precinio

Qualification Title: Bookkeeping (BKP) NC Level: III Total Training Hours: 292
Name of TVI: Angelita V. Del Mundo Foundation (AVM Foundation) Inc.
Competencies to be Achieved Post Transactions
and Learning Outcomes LO1 Prepare ledger
LO2 Transfer journal entries
LO3 Summarize ledger
Learning Activities/ Tasks 1. Ledger for the list of asset, liability, and equity account titles are prepared in accordance with
the Chart of Accounts
2. Ledger for the list of income and expense account titles are prepared in accordance with the
Chart of Accounts
Training Period / Duration Prelim Period
Training Method Blended Learning (Online & Modular - Print)
Method of Assessment Written test, Practical/performance test & Interview
References CBLM in Bookkeeping NC III & Tesda Training Regulations - TR

INFORMATION SHEET 2.1-1

ACCOUNTING FOR MERCHANDISING
PART 1

After studying this chapter, you should be able to:

1. Distinguish between the service and merchandising businesses.
2. Understand the nature of Merchandising Business and its system of inventory.

A merchandising company is an enterprise that buys and sells goods to earn a profit.
For examples: Mercury Drug, ACE Hardware, Puregold and Grocery stores

Nature of Transactions

Merchandise (or merchandise inventory) refers to goods that are held for sale to customers in the normal course of business. This includes goods
held for resale. For example: Candies, canned goods, noodles sold at a grocery stores, Juice, biscuits sold in a grocery store and Medicines sold in
a pharmacy.
If a grocery store decided to sell an old computer used in the office, this would not be merchandise because grocery stores do not normally sell
computers and the store is simply selling of old office equipment. But a computer would be merchandise for a computer store who resells computer
units. Merchandise for one firm may be a fixed asset (or property and equipment) for another.

In another example, a pharmacy decided to sell a table used in their display area. This table is not merchandise of a pharmacy. However, to a retail
furniture store a table is merchandise because the business of a furniture store involves the buying and selling of tables.

Inventory Systems

Perpetual Inventory System — Detailed records of the cost of
each item are maintained, and the cost of each item sold is
determined from records when the sale occurs. For example, a
car dealership has separate inventory records for each vehicle.
 Record purchase of Inventory.
 Record revenue and record cost of goods sold when the
item is sold.
 At the end of the period, no entry is needed except to
adjust inventory for losses, etc.
Periodic System — Cost of goods sold is determined only at the
end of an accounting period. This system involves:
 Record purchase of Inventory.
 Record revenue only when the item is sold.
 At the end of the period, you must compute
Cost of goods sold (COGS).

Additional Considerations:

• Perpetual systems have traditionally been used by companies that sell merchandise with high unit values such as automobiles, furniture, and major
home appliances. With the use of computers and scanners, many companies now use the perpetual inventory system.

• The perpetual inventory system is named because the accounting records continuously — perpetually —show the quantity and cost of the
inventory that should be on hand at any time. The periodic system only periodically updates the cost of inventory on hand.

A perpetual inventory system provides better control over inventories than a periodic inventory, since the records always show the quantity that
should be on hand. Then, any shortages from the actual quantity and what the records show can be investigated immediately.

MERCHANDISING TERMS

 Purchases is a term that refer to goods or items bought for resale. Things bought by the business for use in its operation and not for
sale will not fall under this term.
 Purchase Returns & Allowances refers to goods returned after the purchase due to some defects, wrong specifications, or other
reasons.
 Purchase Discount refers to the deduction from the invoice cost due to prompt payment.
 Freight In refers to the transportation cost of the goods bought for sale.
 Freight Out refers to the transportation cost of the goods sold to customer.
 Merchandise Inventory refers to the goods or merchandise for sale.
 Sales is an account used to refer to gross receipts of the business from the sale of merchandise.
 Sales Returns is a term to designate the return of goods sold due to defects on the merchandise, wrong specifications and others.
 Sales Allowance is a term to a reduction in price due to wrong specification or defects on the goods, and others without returning the
goods.
 Sales Returns & Allowances is a term to denote either an allowance or a return of goods sold. The reason for combining them is that
the amount involved is not material or significant.
 Sales Discount refers to deduction from invoice cost due to prompt payment. This is a cash discount.
 Memorandum is the mode of communication between buyer and seller.
 A debit memorandum, or "debit memo" is a document that records and notifies a customer of debit adjustments made to their accounts
because of the return or merchandise or an allowances.
 A credit memorandum, or "credit memo", is a note a financial institution sends a client, informing the customer about an incremental
change in their account or acknowledgement of the allowances.

PURCHASE AND PAYMENT TERMS

 A Cash Discount is a deduction from the invoice price that can be taken only if the invoice is paid within a specified time. This discount
is to encourage buyer/customer to pay early. Sellers call a cash discount a sales discount and buyers call it a purchase discount.
 Trade Discount is a deduction from the invoice price which encourages buyer/customer to buy more. This is not recorded in the book.
 1/10, n/30 - means a buyer who pays within 10 days following the invoice date may deduct a discount of 1% of the invoice price. If
payment is not made within the discount period, the entire invoice price is due 30 days from the invoice date.
 2/10, n/30 - 2% discount if the account was paid within 10 days and If payment is not made within the discount period the entire
invoice price is due 30 days from the invoice date.
 3/EOM, n/60 - means a buyer who pays by the end of the month of purchase may deduct a 3% discount from the invoice price. If
payment is not made within the discount period, the entire invoice price is due 60 days from the invoice date.
 Net 30 - means the entire invoice price is due 30 days from the invoice date without a discount.
 10 EOM - payable is due 10 days after end of the month. “10 is a discount if it follows a comma (,) or (/) if not then this mean the days
after the end of the month’’
 COD - Cash on Delivery / Collect on Delivery.

Please watch the video:

Purchases and Purchase Discounts https://www.youtube.com/watch?v=qDE1xe72LFc
Periodic vs. Perpetual Inventory System https://www.youtube.com/watch?v=JhFmab5Cdrw