FUNDAMENTALS OF ACCOUNTANCY,

BUSINESS & MANAGEMENT 1

LEARNING
ACTIVITY SHEET
15
NAME: __________________________________

GRADE AND SECTION: __________________________________

DATE OF SUBMISSION: __________________________________

(Page 1)
I. OBJECTIVES

A. Content Standards
The learners demonstrate an understanding on the
preparation of Worksheet and Completing the accounting cycle of
a merchandising business.
B. Performance Standards:
The learners shall be able to complete the accounting cycle of
a merchandizing business.
C. MELCs:
The learners complete the accounting cycle of a
merchandising business.
D. Specific Objectives:
1. Complete the accounting cycle of a Merchandising business.
2. Prepare the Statement of Cost of Goods Sold and Gross Profit.

CHAPTER 12 – LESSON 6 & 7

Accounting Cycle of Merchandising Business

II. CONTENT
Chapter 12. Accounting Cycle of Merchandising Business
Lesson 6: Complete Accounting cycle of Merchandizing
Business
Lesson 7: Statement of Cost of goods Sold & Gross Profit.

III. PROCEDURES:

A. Preliminary Activities

1. Pre-Test
Choose the letter that you think is the best answer to each of the
following questions. Write the letter of your choice on your answer
sheet.
(Page 2)
1. In the Statement of Cost of Goods Sold the beginning inventory is
__________to the cost of goods available for sale.
a. added c. not considered in the CGS
b. deducted d. none
2. In the Statement of Cost of Goods Sold the ending inventory is
__________to the cost of goods available for sale.
a. added c. not considered in the CGS
b. deducted d. none

3. How to compute the Net Purchases?

a. Gross Purchases -Purchase c. Gross Purchases -Purchase
Discount – Purchase return and Discount +Purchase return and
allowances. allowances.management process
b. Gross Purchases +Purchase d. Gross Purchases +Purchase
Discount – Purchase return and Discount + Purchase return and
allowances.management allowances.management theories
functions
4. The transfer cost of merchandise from company warehouse to
clients place is called Freight in. The freight-in is ______ to the cost of
goods available for sale.
a. add c. not considered in the CGS
b. deducted d. none
5. The data source for the Cost of Goods Sold & Income Statement
is__________.
a. Trial balance c. Adjusted Trial Balance
b. Balance Sheet d. None
6. The Net sales in merchandising business is computed as follows.
c. gross sales+sales discount- c. gross sales-sales discount-
sales return & allowances. sales return & allowances.
c. gross sales-sales c. gross sales+sales
discount+sales return & discount+sales return &
allowances. allowances.
7.The accounting cycle of a merchandising concern is same with
servicing concern.
a. True c. False
b. Maybe d. Not sure
8. Merchandising company is the one…
a. renders services c. purchase goods
b. sells goods for profit d. c & b

(Page 3)
9. The cost of merchandise bought plus profit is equals to:
a. Selling Price c. Net Profit
b. Purchase Price d. Cost of Sales

10. Which of the following are closing entries for the sale revenue:
a. Sales 120,000.00 c. Sales 120,000.00
Sales Discount 30,000.00 Sales Discount 30,000.00
Sales return & Allow. 20,000.00 Sales Return & allow 20,000.00
Profit & Loss Summary130,000.00 Profit & Loss Summary 70,000.00
To close sales & related accounts. To close sales & related accounts
b. Sales 120,000.00 d. Sales 120,000.00
Sales return & Allow. 20,000.00 Profit & Loss Summary (90,000.00)
Sales Discount 30,000.00 Sales Discount 30,000.00
Profit & Loss Summary 110,000.00 Sales return & Allow. 20,000.00
To close sales & related accounts To close sales & related accounts
11. Closing entry for Beginning Inventory in the amount of 80,000.00
a. Profit & Loss Summary 80.000.00 c. Beginning Inventory 80,000.00
Beginning Inventory 80,000.00 Profit & Loss Summary 80,000.00
To close beginning inventory. To close beginning inventory.
b. Sales 80.000.00 d. Beginning Inventory 80,000.00
Beginning Inventory 80,000.00 Sales 80,000.00
To close beginning inventory. To close beginning inventory.

12. Closing entry for Ending Inventory in the amount of 62,000.00

a. Profit & Loss Summary 62.000.00 c. Ending Inventory 62,000.00
Ending Inventory 62,000.00 Profit & Loss Summary 62,000.00
To close ending inventory To close ending inventory
13. What is the method of accounting for inventories in which cost of
goods sold is recorded each time the sales is made:
a. Professional Inventory System c. Periodic Inventory System
b. Perpetual inventory system d. Planned Inventory System

14. Which of the following account has a normal debit balance.

a. Accounts Payable c. Sales Return & Allowances
b. Perpetual inventory system d. Interest Revenue

15.Under Perpetual Inventory system, the account credited in the journal

entry to record the return of merchandise is _______.
a. Purchases c. Merchandise Inventory
b. Purchase Return & allowances d. Accounts Payable

(Page 4)
2. Reviewing Previous Lesson
In our last topic we have learned how to make
adjusting entries for the following items: accruals,
prepayments, deferrals, depreciation, supplies, bad debt
expense and accounting errors and how to prepare the
adjusted trial balance.

B. Presenting the New Lesson

This topic is designed to teach you how to prepare the
worksheet, considering the cost of goods sold, income
statement, statement of changes in equity and the final
columns for Balance Sheet or the Statement of Financial
Position. Prepare the closing entries by debiting or crediting
all nominal accounts to the Profit & Loss Summary created.
And in end to prepare the Report Form of each Financial
Statements.

1. ACTIVITY: Motivation
What are the activities of the buyer & the seller
represented by the following pictures below?

1. ______________ 2. ____________ 3. ______________

4. _______________ 5._____________ 6.________________

(Page 5)
2. ANALYSIS:
Processing question/s:
A. What is Purhases? Why company make purchases?
________________________________________________________
______________________________________________________
B. How return of merchandise affects the periodic
inventory system?
________________________________________________________
______________________________________________________
C. What is cost of goods sold? Is it an expense or not?
________________________________________________________
______________________________________________________
3. ABSTRACTION
Adjusted Trial Balance are prepared after adjusting the
financial records.
The inventory appearing on the adjusted trial balance is not
the final ending inventory for the period but is actually the
beginning inventory. The ending inventory as counted at the end
of the current period shall be set-up to the records during the
closing of the books.

DETERMINATION OF INCOME IN MERCHANDISING

Income in merchandising is determined as follows:
Net Sales (*1) ₱ XXX,XXX.XX
Less: Cost of Sales(*2) XXX,XXX.XX
Gross Profit ₱ XXX,XXX.XX
Less: Expenses XXX,XXX.XX
Net Income ₱ XXX,XXX.XX

(*1)Net Sales in m or revenue in merchandising shall be

computed as follows:
Sales (gross) ₱ XXX,XXX.XX
Less: Sales Discounts ₱ XX,XXX.XX
Sales return & allowance XX,XXX.XX XX,XXX.XX
Net Sales ₱ XXX,XXX.XX
(Page 6)
 Cost of Goods Sold (CGS) refers to the cost of producing
goods & services. In determining CGS, the inventories at the
beginning & ending of the accounting period are considered in the
calculation of cost of goods sold.

(*2)CGS is computed this using Inventory Methods:

Inventory, Beginning ₱ XXX,XXX.XX

Add: Net Purchases (*3) XXX,XXX.XX
Total goods available for sale ₱ XXX,XXX.XX
Less: Inventory, Ending XXX,XXX.XX
Cos of Goods Sold /Cos of Sales ₱ XXX,XXX.XX

(*3)Net Purchases *

Net Purchases in merchandising shall be computed as follows:

Purchases (gross) ₱ XXX,XXX.XX
Add: Freight-in XX,XXX.XX
Less: Inventory, Ending XX,XXX.XX
Purchases return & allowance XX,XXX.XX XX,XXX.XX
Net Purchases ₱ XXX,XXX.XX

Worksheet Preparation for a Merchandizing concern will be

slightly modified by the addition of new column “Cost of Sales”
or cost of goods sold” between the adjusted trial balance and
income statement columns.

Worksheet Illustration: Let us use the Adjusted Trial balance

of Jubilance Co.
Jubilance Company has an Ending Inventory of ₱37,000.00

See attach Worksheet for this Learning Activity Sheet.

(Page 7)
 LESSON 6

The ending inventory is a credit adjustment to the Cost of

Sales columns, which will be matched to the debit adjustments
on the balance sheet columns.

The difference between the debit and credit columns of cost

of sales is an expense, a debit item in the income statement.

Notes: For Net Profit, the total credits is greater than the total
debits in the income statement. The amount must be debited to
balance the debit & credit balance. This will be matched to the
credit adjustment in the Statement of Changes in Equity.

AND, For Net Loss, the total debits is greater than the total
credits in the income statement. The amount must be credited
to balance the debit & credit balance. This will be matched to
the debit adjustment in the Statement of Changes in Equity.
Thus, served as a deduction to the Equity account.

JUBILANCE CO.
Statement of Cost of Goods Sold
For the period ended December 31, 2019
Beginning Inventory ₱43,000.00
Add: Net Purchases
Gross Purchases ₱124,000.00
Less:
Purchase discount ₱8,000.00
Purchase Return & Allowances 5,000.00 13,000.00 111,000.00
Add: Freight-in 9,000.00
Total Cost Available for Sale ₱163,000.00
Less: Ending Inventory 37,000.00
Cost of Goods Sold ₱126,000.00
 JUBILANCE CO.
Income Statement
For the period ended December 31, 2019
Gross Sales ₱320,00000
Less:
Sales Discount ₱3,000.00
Sales Return & Allowances 2,000.00 5,000.00
Net Sales ₱315,000.00
Less: Cost of Sales 126,000.00
Gross Profit ₱189,000.00
Add: Other income
Interest Income 4.500.00
TOTAL INCOME ₱193,500.00
LESS: EXPENSES
Salaries Expense ₱47,000.00
Taxes & Licenses expense 12,000.00
Interest Expense 8,000.00
Freight -Out 5,000.00
Rent Expense 35,000.00
Depreciation Expense 4,000.00
Bad Debt Expense 5,000.00 116,,000.00
NET INCOME. ₱77,500.00

JUBILANCE CO.
Statement of Changes in Equity
For the period ended December 31, 2019
Capital, Beginning ₱110,000.00
Add: Net Income 77,500.00
Less: Withdrawal 8,000.00
Capital, Endings ₱179,500.00

(Page 9)
 CLOSING ENTRIES FOR MERCHANDISING BUSINESS
(Periodic Inventory System)

1. Closing of Sales Revenue

Date Account Debit Credit
Dec. 31 Sales ₱ XX,XXX.XX
Sales Discount ₱XX,XXX.XX
Sales Return & Allowances XX,XXX.XX
Profit or Loss Summary XX,XXX.XX
To close Sales & related accounts

2. Closing of Inventory related accounts

a. Closing of beginning inventories
Date Account Debit Credit
Dec. 31 Profit or Loss summary ₱ XX,XXX.XX
Beginning, Inventory ₱XX,XXX.XX
To Close Beginning Inventory

b. Closing of purchase related accounts

Date Account Debit Credit
Dec. 31 Profit or Loss summary ₱ XX,XXX.XX
Purchase Discounts XX,XXX.XX
Purchase return & XX,XXX.XX
allowances
Purchases ₱XX,XXX.XX
Freight-in XX,XXX.XX
To close purchases and related accounts

c. Set-up ending inventory

Date Account Debit Credit
Dec. 31 Inventory, End ₱ XX,XXX.XX
Profit or Loss Summary ₱XX,XXX.XX
To set-upending inventory in the account

(Page 10)
4. APPLICATION: Independent Activities
C. Independent Activities (Formative)
ACTIVITY A: (Written Work / Task)

1. Cost of Sales
Company Eat Co. Fat Co. Gat Co. Hat Co.
Merchandise ₱260,000.00 ₱370,000.00 ₱? ₱610,000.00
Inventory
Beginning
Purchases 410,000.00 ? 715,000.00 998,000.00
Freight-in 20,000.00 25,000.00 25,000 102,000.00
Purchase return & 7,000.00 0 5,000 0
allowances
Purchase 5,000.00 12,000.00 0 8,000.00
Discounts
Merchandise 350,000.00 320,000.00 301,000 ?
Inventory end
Cost of goods sold ? 477,000.00 702,000.00 800,000.00

REQUIRED: Determine the Missing Items.

2. Income Statement
Company Eco Co. Fat Co. Gat Co. Hat Co.
Sales ₱310,000.00 ₱490,000.00 ₱ 340,000.00 ₱410,000.00
Sale Return & 16,000.00 30,000.00 20,000.00 17,000.00
Allowances
Sales Discount 10,000.00 10,000.00 25,000.00 8,000.00
Cost of Sales 185,000.00 ? 100,000.00 110,000.00
Selling Expense 22,000.00 18,000.00 ? 50,000.00
Gen. & Admin. 36,000.00 15,000.00 18,000.00 ?
Expenses
Other Expense 5,000.00 12,000.00 12,000.00 15,000.00
Net Profit ? (7,000.00) 145,000.00 203,000.00

REQUIRED: Determine the Missing Items

(Page 11)
ACTIVITY B: (Written Work / Task)
True or False: Write YES if the statement is true and NO if the
statement is false.
1. Cost of goods sold is a residual amount under the inventory
system.
2. The net loss of the company is added to the Equity account.
3. Under periodic inventory system, no entry us made for cost
of goods sold when the entity makes sale.
4. Sales Return & Allowances reduces the amount of Sales.
5. Freight-in reduces the amount of cost of goods sold.

ACTIVITY C: (Written Work / Task)

Matching Type: Match column A with the correct answer

in column B, write only the letter of answer on the space provided
at the left side of the test paper.
Ans COLUMN A
COLUMN B
.
1. Cost of Sales
a. A privilege given to customers.
2. Net Purchases b. The result after deducting ending
inventory to the total cost of
goods available for sale.
3. Sales Discount c. A statement made after
considering all closing entries
required.
4. Purchase d. Shows a summary of the changes
Discount in the capital during the period.
5. Income e. An amount added to the
statement Beginning inventory
6. Balance Sheet f. Reduces the amount paid to
supplier.
7. Statement of
change in
g. Shows income, expenses and net
equity profit.

(Page 12)
ACTIVITY D: (Written Works / Task)
1. Worksheet Preparation for Zephaniah Co. (Ending Inventory 42,000.00)
Zephaniah Co.
Adjusted Trial Balance
For the period ended December 31, 2019
Accounts Debit Credit
Cash ₱11,000.00
Accounts Receivable 29,000.00
Allowance for bad debts ₱4,000.00
Notes Receivable 92,000.00
Advances to Supplier 10,000.00
Inventory 41,000.00
Office Supplies 16,000.00
Equipment 50,000.00
Accumulated Depreciation 13,000.00
Accounts Payable 24,000.00
Advances from customers 12,000.00
Owner’s Capital 100,000.00
Owner’s Drawings 5,000.00
Sales 310,000.00
Sales Discount 1,000.00
Sales Return & Allowances 2,000.00
Purchases 110,000.00
Freight-in 7,000.00
Purchase Discounts 5,000.00
Purchase return & allowances 4,000.00
Salaries Expense 45,000.00
Taxes & Licenses expense 15,000.00
Interest expense 5,000.00
Freight-out 9,000.00
Rent expense 32,000.00
Accrued interest income 2,000.00
Interest income 3,000.00
Accrued salaries expense 9,500.00
Accrued interest expense 2,000.00
Depreciation expense 3,000.00
Accrued rent expense 2,500.00
Bad Debts expense 4,000.00
 Rubrics in Worksheet Preparation (Grading System)

Criteria Excellent Good Satisfactory Unsatisfactory

4 pionts 3 points 2 points 1 point
Accuracy Prepares Prepares Prepares The Preparation
accurately Worksheet Worksheet of Worksheet
with minimal with plenty are all
Errors Errors Erroneous
Worksheet Shows Shows clear Shows limited Did not apply
concept excellent understanding understanding the concept of
understanding & skills in & skills in Worksheet
& skills in Worksheet Worksheet Preparation
Worksheet Preparation Preparation
Preparation
Submitted Submitted on Submitted 1-6 Submitted one Submitted
on Time or before the days after the week after more more than
deadline. deadline deadline one week after
the deadline

IV. REFLECTION
Complete the following sentences:
1. I learned how to _________________________________________
____________________________________________________________
________________________________________________________.
2. From the worksheet I was able to prepare the following
statements of_____________________________________________
__________________________________________________________
__________________________________________________________.
3. I learned that ____________________________________________
__________________________________________________________.

(Page 14)
V. ASSESSMENT
Post Test
Choose the letter that you think is the best answer to each of the
following questions. Write the letter of your choice on your answer
sheet.
1. Closing entry for Ending Inventory in the amount of 50,000.00
a. Profit & Loss Summary 50.000.00 b . Ending Inventory 50,000.00
Ending Inventory 50,000.00 Profit & Loss Summary 50,000.00
To close ending inventory To close ending inventory

2. What is the method of accounting for inventories in which cost of

goods sold is recorded each time the sales is made:
a. Professional Inventory System c. Periodic Inventory System
b. Perpetual inventory system d. Planned Inventory System

3. Which of the following account has a normal debit balance.

a. Accounts Payable c. Sales Return & Allowances
b. Perpetual inventory system d. Interest Revenue

4.Under Perpetual Inventory system, the account credited in the journal

entry to record the return of merchandise is _______.
a. Purchases c. Merchandise Inventory
b. Purchase Return & allowances d. Accounts Payable

5. In the Statement of Cost of Goods Sold the beginning inventory is

__________to the cost of goods available for sale.
a. added c. not considered in the CGS
b. deducted d. none
6. In the Statement of Cost of Goods Sold the ending inventory is
__________to the cost of goods available for sale.
a. added c. not considered in the CGS
b. deducted d. none

7. How to compute the Net Purchases?

a. Gross Purchases -Purchase c. Gross Purchases -Purchase
Discount – Purchase return and Discount +Purchase return and
allowances. allowances.management process

(Page 15)
b. Gross Purchases +Purchase d. Gross Purchases +Purchase
Discount – Purchase return and Discount + Purchase return and
allowances.management allowances.management theories
functions
8. The transfer cost of merchandise from company warehouse to
clients place is called Freight in. The freight-in is ______ to the cost of
goods available for sale.
a. add c. not considered in the CGS
b. deducted d. none
9. The data source for the Cost of Goods Sold & Income Statement
is__________.
a. Trial balance c. Adjusted Trial Balance
b. Balance Sheet d. None
10. The Net sales in merchandising business is computed as follows.
c. gross sales+sales discount- c. gross sales-sales discount-
sales return & allowances. sales return & allowances.
c. gross sales-sales c. gross sales+sales
discount+sales return & discount+sales return &
allowances. allowances.
11.The accounting cycle of a merchandising concern is same with
servicing concern.
a. True c. False
b. Maybe d. Not sure
12.Merchandising company is the one…
a. renders services c. purchase goods
b. sells goods for profit d. c & b

13. The cost of merchandise bought plus profit is equals to:

a. Selling Price c. Net Profit
b. Purchase Price d. Cost of Sales
14. Which of the following are closing entries for the sale
revenue:
a. Sales 100,000.00 c. Sales 100,000.00
Sales Discount 20,000.00 Sales Discount 20,000.00
Sales return & Allow. 10,000.00 Sales Return & allow 10,000.00
Profit & Loss Summary 110,000.00 Profit & Loss Summary 70,000.00
To close sales & related accounts. To close sales & related accounts

(Page 16)
b. Sales 100,000.00 d. Sales 100,000.00
Sales return & Allow. 10,000.00 Profit & Loss Summary (70,000.00)
Sales Discount 20,000.00 Sales Discount 20,000.00
Profit & Loss Summary 90,000.00 Sales return & Allow. 10,000.00
To close sales & related accounts To close sales & related accounts
15. Closing entry for Beginning Inventory in the amount of
70,000.00
a. Profit & Loss Summary 70.000.00 c. Beginning Inventory 70,000.00
Beginning Inventory 70,000.00 Profit & Loss Summary 70,000.00
To close beginning inventory. To close beginning inventory.
b. Sales 70.000.00 d. Beginning Inventory 70,000.00
Beginning Inventory 70,000.00 Sales 70,000.00
To close beginning inventory. To close beginning inventory.
Enrichment Activities
Prepare Income Statement for CJO Limited Inc.
For the period ended December 31, 2019. Base on the
following data given below:

Gross Sales ₱350,00000

Sales Discount 3,500.00
Sales Return & Allowances 2,200.00
Cost of Sales 132,000.00
Interest Income 3.500.00
Salaries Expense 36,000.00
Gen & Admin Expenses 13,000.00
Interest Expense 15,000.00
References:

Rex B. Bangaawan, CPA, MBA & Darrel Joe O. Asuncion,

CPA, MBA (2017). Fundamentals of Accountancy Business
& Management 1 Textbook for Senior High School Student.
Pasay City: Real Excellence Publishing

Zeus Vernon B. Millan, CPA & Rodiel C. Ferrer, CPA,

MBA, DBA, PhD CAR DipIFRS, CrFA, CICA, CMA.
Fundamentals of Accountancy Business & Management 1,
Baguio City, Bandolin Enterprises.

(Page 17)