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FUNDAMENTALS
OF ABM 1
QUARTER 4

ACTIVITY SHEETS
Fundamentals of Accountancy, Business and Management 1 - Grade 11
Learning Activity Sheets
Quarter 4

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Published by the Department of Education – Schools Division of Tacloban City

Schools Division Superintendent: Mariza S. Magan
Assistant Schools Division Superintendent: Edgar Y. Tenasas

Department of Education - Region No. VIII – Schools Division Office of Tacloban City
Office Address: Real St., Tacloban City

Learning Activity Sheet in

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS
AND MANAGEMENT 1

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 Quarter 4 - Week 4
Grade 11

Name: ___________________________________ Grade and Section: _______________

Activity Sheet No. 4 Date Answered: ___________________

Lesson 4 MERCHANDISING BUSINESS

(PERPETUAL INVENTORY SYSTEM)

Learning Competencies:
1. Records transactions of a merchandising business in the general journals
using the perpetual inventory system (ABM_FABM11-IVe-j-36);
2. Posts transactions in the general ledgers (ABM_FABM11-IVe-j -37) ; and
3. Prepares a trial balance (ABM_FABM11-IVe-j -38).

Let’s Kick It Off!

Activity 1. IDENTIFY ME!

Direction: Identify if the following statements describe a Periodic Inventory System
or Perpetual Inventory System. Write Periodic or Perpetual on the
blanks. Do this in a separate sheet of paper.

______ 1. A physical inventory count is usually done at the end of the period.
______ 2. Purchase of merchandise is “debited” to purchases.
______ 3. Purchase discount is “credited” to merchandise inventory.
______ 4. Freight-in is “debited” for freight and handling charges of merchandise
purchased.
______ 5. It is characterized by the use of stock cards.
______ 6. Purchase discount is “debited” to merchandise inventory.
______ 7. Facilitates better control because it provides information of merchandise
inventory on hand.
______ 8. Discount availed in prompt payment of merchandise purchased is debited
to purchase discount.
______ 9. Cost of goods sold is computed at the end of the period.

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______ 10. Cost of sales and ending inventory are already reflected in the stock
card.

Are You Taking It?

Activity 2. THINK! RELATE! CONNECT!

1. What is the main difference between periodic inventory system and
perpetual inventory system?
2. If you will have a buy and sell business, which system would you use? Why?
3. Why do merchandising companies need to establish a system in inventory
keeping?

Here’s How It Is!

Perpetual Inventory System

Merchandising business uses two systems in keeping its inventories –

periodic inventory system and perpetual inventory system. We have already
discussed how to record transactions in a merchandising business using the
periodic system.
In this learning activity sheet, we will focus on the perpetual inventory
system. Under this system, the use of stock card is a must. There is a continuous
updating of the ins and outs in the stock card every time there are purchases and
sale of merchandise. It facilitates a better control because it provides information of
merchandise inventory on hand. Below is an example of a stock card of a typical
merchandising business.

Supplier : Purefoods, Inc.

Description : Pork Belly
Received Issued Balance
Date Unit Quantity Amount Quantit Amount Quantity Amount
Cost y
March 1 P28 60 kgs. P16,800
0
5 P28 50kgs. P14,000 110 kgs. 30,800
0
18 P28 70 kgs. P19,600 40 kgs. 11,200
0

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 Therefore, if perpetual inventory system is used, there is no need to establish
ending inventory because the stock cards reflect both the cost of sales of P19,600
and the inventory at the end in the amount of P11,200.

Source: Lopez, Jr. Rafael M. 2016. Fundamentals of Accounting. Davao City Philippines: MS Lopez Printing & Publishing.

Journalizing Transactions in a Merchandising Business using the

Perpetual Inventory System

The following account titles are used in journalizing merchandising business

under perpetual inventory system:

In recording SALES, there are two (2) entries that must be prepared:
1st entry:
A/R or Cash XX
Sales XX
2nd entry:
Cost of Sales XX
Merchandise Inventory XX

In recording SALES RETURN AND ALLOWANCES, there must be two (2)

entries:
1st entry:
Sales Return & Allowances XX
A/R or Cash XX
2nd entry:
Merchandise Inventory XX
Cost of Sales XX

In recording FREIGHT-IN, use the account title Merchandise Inventory:

Periodic:
Freight-in XX
Cash XX

Perpetual:
Merchandise Inventory XX
Cash XX

In recording PURCHASES, use the account title Merchandise Inventory:

Periodic:
Purchases XX
Cash or A/P XX

Perpetual:
Merchandise Inventory XX
Cash or A/P XX

In recording PURCHASE RETURN AND ALLOWANCES, use the account title

Merchandise Inventory:
Periodic:
A/P or Cash XX
Purchase Return & Allow. XX

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 Perpetual:
A/P or Cash XX
Merchandise Inventory XX
Source: Lopez, Jr. Rafael M. 2016. Fundamentals of Accounting. Davao City Philippines: MS Lopez Printing & Publishing.
In recording PURCHASE DISCOUNT, use the account title Merchandise
Inventory:
Periodic:
A/P XX
Purchase Discount XX
Cash XX
Perpetual:
A/P XX
Merchandise Inventory XX
Cash XX

Determination of the Ownership of Merchandise

The sales agreement should indicate whether the seller or the buyer is to pay the
cost of transporting the goods to the buyer’s place of business. The two most
common arrangements for freight costs are as follows:

 FOB Shipping Point

 Goods placed free on board (FOB) the carrier by seller.
 Buyer pays freight costs.
 Freight-In is debited if buyer pays freight.
 Ownership over the goods is transferred to the buyer once it is out of
the premises of the seller.

 FOB Destination
 Goods placed free on board (FOB) at buyer’s business.
 Seller pays freight costs.
 Ownership over the goods is transferred to the buyer once the goods
are delivered and received by the buyer.

Examples: (explanations intentionally removed)

1. The company purchased merchandise on account from MS Co., P120,000
FOB Shipping point. Freight paid was P3,200.
Journal Entry: Dr. Cr.
Merchandise Inventory 120,000
A/P 120,000

Merchandise Inventory 3,200

Cash 3,200
Note: The company here is the buyer and the shipping term used is FOB Shipping
Point, in which buyer shoulders the freight, so the company should record the
freight-in.

2. The company sold merchandise on account to LM Corp., P95,000, FOB

Shipping point. The cost of goods sold was P75,000. Freight paid
amounted to P500.
Journal Entry: Dr. Cr.
A/R 95,000

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 Sales 95,000

Cost of Sales 75,000

Merchandise Inventory 75,000
Source: Lopez, Jr. Rafael M. 2016. Fundamentals of Accounting. Davao City Philippines: MS Lopez Printing & Publishing.
Note: The company here is the seller and the shipping term used was FOB
Shipping Point, in which the buyer shoulders the freight, so the company need not
record the freight-out.

3. The company sold merchandise for cash, P48,900. FOB Destination.

Freight paid was P1,800. The cost of goods sold was P45,000.
Journal Entry: Dr. Cr.
Cash 48,900
Sales 48,900

Cost of Sales 45,000

Merchandise Inventory 45,000

Freight-out 1,800
Cash 1,800
Note: The company here is the seller and the shipping term used was FOB
Destination, in which the seller shoulders the freight, so the company need to
record the freight-out.

ILLUSTRATIVE EXAMPLE OF JOURNALIZING TRANSACTIONS

UNDER PERPETUAL INVENTORY SYSTEM

The following were the transactions of Metro Tacloban Hardware and Auto
Supply, a business owned by Mr. Arnold Go.
On Jan. 2, Mr. Go invested the following to the company:
o Bank deposit with Banco Sentro Tacloban, P800,000.
o Merchandise inventory with a fair value of P200,000.

Journal Entry: Dr. Cr.

Cash in Bank 800,000
Merchandise Inventory 200,000
A. Go, Capital 1,000,000
Owner’s investment.

On Jan. 3, the company purchased merchandise in cash from B. Ocampo

Co. costing P150,000 FOB Shipping Point. Freight was P1,500.

Journal Entry: Dr. Cr.

Merchandise Inventory 150,000
Cash in Bank 150,000
Purchase of merchandise for cash.

Merchandise Inventory 1,500

Cash in Bank 1,500
Payment of freight on purchase.

On Jan. 4, the company returned P4,000 cost of merchandise to B. Ocampo

Co. for not conforming with the order.

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Journal Entry: Dr. Cr.
Cash in Bank 4,000
Merchandise Inventory 4,000
Return of merchandise purchased from B. Ocampo Co.
On Jan. 6, the company sold merchandise for cash, P160,000 to J. Suarez
FOB Destination. Freight, P3,000. The cost of goods sold was P130,000.

Journal Entry: Dr. Cr.

Cash in Bank 160,000
Sales 160,000
Sale of merchandise for cash.

Cost of Sales 130,000

Merchandise Inventory 130,000
Cost of goods sold.

Freight-out 3,000
Cash in Bank 3,000
Freight on merchandise sold.

On Jan. 8, the company received P20,000 worth of merchandise from J.

Suarez Co. due to bad order. The cost of the merchandise returned, P15,000.

Journal Entry: Dr. Cr.

Sales Return & Allowances 20,000
Cash in Bank 20,000
Return of merchandise sold in Cash.

Merchandise Inventory 15,000

Cost of Sales 15,000
Cost of merchandise returned.

On Jan. 10, the company purchased merchandise on account from E. Lopez

Trading amounting to 60,000. FOB Destination. Term: 3/10, 2/20, N/30.

Journal Entry: Dr. Cr.

Merchandise Inventory 60,000
Accounts Payable 60,000
E. Lopez Trading, FOB Destination,
3/10, 2/20, N/30

On Jan. 11, the company sold merchandise on account to F. Ayala Co.,

P250,000. FOB Destination. Freight on shipment, P1,000. Term: 2/10,
N/30.
The cost of goods sold was P215,000.

Journal Entry: Dr. Cr.

Accounts Receivable 250,000
Sales 250,000
F. Ayala Co., FOB Destination, 2/10, N/30.

Cost of Sales 215,000

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 Merchandise Inventory 215,000
Cost of goods sold.

Freight-out 1,000
Cash in Bank 1,000
Freight on merchandise sold.

On Jan. 12, the company received P1,600 worth of merchandise return from
F. Ayala Co. due to bad order and was not replaced. The cost of the goods
returned was P1,250. (refer to Jan. 11 transaction)

Journal Entry: Dr. Cr.

Sales Return & Allowances 1,600
Accounts Receivable 1,600
Return of merchandise sold on account.

Merchandise Inventory 1,250

Cost of Sales 1,250
Cost of merchandise returned

On Jan. 13, The company purchased merchandise on account from J. Faller

& Sons costing P5,500. FOB Destination. Term: 2/20, N/30.

Journal Entry: Dr. Cr.

Merchandise Inventory 5,500
Accounts Payable 5,500
J. Faller & Sons. FOB Destination, 2/20, N/30.

On Jan. 14, the company returned P500 cost of merchandise to J. Faller &
Sons for defective merchandise.

Journal Entry: Dr. Cr.

Accounts Payable 500
Merchandise Inventory 500
Return of merchandise purchased
from J. Faller & Sons.

On Jan 15, the company paid the account with E. Lopez Trading (refer to
Jan.10 transaction).

Journal Entry: Dr. Cr.

Accounts Payable 60,000
Cash in Bank 58,200
Merchandise Inventory 1,800
Payment of account with a discount.

On Jan. 21, the company collected accounts from F. Ayala Co. (refer to Jan.
11 and 12 transactions).

Journal Entry: Dr. Cr.

Cash in Bank 243,432
Sales Discount (2%) 4,968

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 Accounts Receivable 248,400
Collection of sales on account.

On Jan 25, the company paid account with J. Faller & Sons. (refer to Jan.
13 and 14 transaction)

Journal Entry: Dr. Cr.

Accounts Payable 5,000
Cash in Bank 4,900
Merchandise Inventory 100
Payment of account with a discount.

Source: Lopez, Jr. Rafael M. 2016. Fundamentals of Accounting. Davao City Philippines: MS Lopez Printing & Publishing

Now Do It!

Activity 3. Journalizing under Perpetual Inventory System

Direction: Journalize the following transactions using the perpetual inventory
system. The first one is done for you. Do this in a separate sheet of
paper.

1. A) On July 5, the company sold merchandise to Oppa Store on credit for

P5,000, FOB Destination, Term: 3/10, N/30. Freight, P150. The cost of
the
merchandise sold was P3,800.
Journal Entry:
Dr. Cr.
A/R 5,000
Sales 5,000
Oppa Store. FOB Destination, 3/10, N/30.
Cost of Sales 3,800
Merchandise Inventory 3,800
Cost of merchandise sold.
Freight-out 150
Cash 150
Freight on merchandise sold.

B) On July 6, the company received P500 worth of merchandise from Oppa

Store due to bad order. The cost of the merchandise returned was P420.
C) On July 13, the company collected from Oppa Store.

2. A) On Jan. 8, the company purchased merchandise on credit from

PremiumBitz Limited for P2,600. FOB Shipping Point. Term: 2/10, 1/20,
N/30. Freight on purchase, P250.
B) On Jan. 9, the company returned P300 cost of merchandise to
PremiumBitz
Limited for not conforming with the order.

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 C) On Jan. 23, the company paid for the merchandise purchased on Jan. 8.

3. A) On Sept. 11, the company bought merchandise on account from 3 J’s

Store for P25,000. FOB Destination. Term: 2/10,N/30.
B) On Sept. 13, the company returned P1,200 cost of merchandise to 3 J’s
Store for not conforming to the order.
C) On Sept. 22, the company paid the account from Sept. 11 transaction.
4. A) On Nov. 15, the company sold merchandise to SunGoods Corp. on credit,
P15,000. FOB Destination. Term: 3/10, 2/20, N/30. Freight, P750. The
cost of the merchandise sold was P12,000.
B) On Nov. 16, the company received P1,500 cost of merchandise from
SunGoods Corp. for not conforming with the order. The cost of the
merchandise returned was P1,250.
C) On Nov. 26, the company collected account from SunGoods Corp.

Ace It!

Assessment:
Direction: Read the case problem below and provide what is asked. Do this in a
two columns journal.

The following were the transactions taken from the books of Oppa Grocery
Store owned by Ms. Louise Garcia. The store was established on June 1, 2021. The
company uses the perpetual inventory system. You are asked to journalize the
following transactions, post and foot using the T-account and prepare a trial
balance.

Jun 1 The owner invested P250,000 cash into the business. She also invested
furniture and fixtures with a fair value of P120,000
2 Purchased merchandise on account from Bright Marketing, P70,000.
FOB Shipping Point. Term: 2/20, N/30. Freight paid was P700.
3 Purchased merchandise for cash from SM Trading, P180,000. FOB
Destination. Freight paid was P250.
5 Paid for one year advance rent, P105,000.
7 Returned P20,000 cost of merchandise to SM Trading for not conforming
with the order.
9 Sold merchandise for cash to L. Montalla Co., P95,000. FOB Destination.
Freight paid, P2,800. The cost of merchandise sold was P60,000.
10 Returned P3,000 cost of merchandise to Bright Marketing due to some
defects.
12 Paid account with Bright Marketing.
15 Sold merchandise on account to Johnsons , Inc. P150,000. FOB
Destination. Term: 4/10, 2/20, N/30. Freight was P6,000. The cost of
merchandise sold was P100,000.
16 The owner withdrew cash from the company, P25,000
17 Sold merchandise on account to P. Alvarez Co., P80,500. FOB Shipping
Point. Term: 3/10, 2/20, N/30. Freight was p2,300.
18 Bought P85,000 worth of merchandise on account from Reyna’s Co. FOB
Shipping Point. Term: 3/10, 2/20, N/30. Freight was P1,200.

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22 Received P1,500 cost of merchandise from L. Montalla Co. due to bad
order. The cost of the merchandise returned was P1,000.
24 Collected in full the account with Johnsons, Inc.
26 Paid for employees’ salary and electricity, P15,000 and P8,000
respectively.
28 Received merchandise return from P. Alvarez Co., P4,500 for not
conforming with the order. The cost of the merchandise returned was
P4,000.
30 Collected payment from P. Alvarez Co.

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