Fundamentals of Accountancy, Business, &

Management 1
Name: _____________________________ Grade: ______________
Date: ______________________________ Score: ______________

CONTEXTUALIZED LEARNING ACTIVITY SHEET

Quarter 2 – Week 2: Accounting Cycle of a Merchandising
Business

I. Most Essential Learning Competencies (MELCs):

1. Describe the nature of transactions in a merchandising business.
2. Record transactions of a merchandising business in the general and special journals.

Hi there! We will now delve deeper into the accounting cycle

of a merchandising business. In this contextualized
learning activity sheet, you will be able to apply what you
have learned from your modules in Fundamentals of ABM
1. Are you ready? Let’s start!

II. Background Information for Learners

Nature of Transactions of a Merchandising Business

A merchandising business is a type of business engaged in buying and

selling of goods or merchandise. It is also referred to refers to an enterprise that
buys and sells goods to earn a profit.
 MERCHANDISE OR MERCHANDISE INVENTORY

• It refers to an item bought by a business for the purpose of reselling it.

SALES OR SALES REVENUE

• It this is the primary source of revenue in merchandising business.

Sales Returns and Allowance Sales Discount

• A customer may return merchandise if it • Two usual discounts granted to customers

broken or if it is not as ordered. are (1) trade discounts and (2) cash
discounts

• A percentage reduction from a published list price may be

Trade Discounts granted to customers for patronizing the business. This is
immediately deducted from the list price.

• When goods are sold on credit, terms of payment depend on

the custom of the industry. Usual credit terms: n/30 (gross
Cash Discounts amount is payable within 30 days from the date sale), or
2/10,n/30 (gross amount is payable within 30 days with 2%
discount given if the account is paid within 10 days).

PURCHASES

• It represents goods available for sale by the business for a particular accounting
period.

Purchase Returns and Allowances Purchase Discount

• Goods bought may be returned to the • Discount claimed by the buyer.

seller for being defective, spoiled or not
as ordered.

TRANSPORTATION/FREIGHT COSTS

• The two most common arrangements for transportation or freight costs are FOB
Shipping Point and FOB Destination.

FOB Shipping Point FOB Destination

• Buyer should pay for the freight. This is • Seller is liable for the freight.
added to Purchases to get the gross
purchases.
Expenses of a Merchandising Business

Cost of Goods Sold or Cost of Sales

• The amount of merchandise sold by the business for a given period. The formula
to compute for cost of goods sold is:

Operating Expenses

• These refer to expenses incurred by the business in their day-to day operations.
• Examples: salaries, utilities, rent, supplies, insurance, transportation, depreciation,
delivery, and advertising.

The Income Statement of a Merchandising Business

In the income statement for merchandising business, cost of goods

sold is deducted from sales revenue to get gross profit. Operating expenses are
then deducted from gross profit to get the net income or net loss for the period.
Below is a comparison of a service business and a merchandising business
income statement:

Journalizing the Transactions of a Merchandising Business

Businesses initially record transactions and events in chronological order.

These journal entries are recorded in either the general journal or special journal.
This is the second step in the accounting cycle. Thus, the journal is referred to as
the book of original entry. There are two types of journals, the general journal, and
the special journal.
 General Journal

• It contains all journal entries of a company.

Special Journals

• To eliminate the problem of congestion of recording repeating business

transactions in the general journal, other businesses use special journals.
• The following are the example of special journals:

Cash Receipts
• It is used to record all cash that had been received
Journal
Cash Disbursements
• It is used to record all transactions involving cash payments
Journal
Sales Journal (Sales
• It is used to record all sales on credit (on account)
on Account Journal)
Purchase Journal
• It is used to record all purchases of inventory on credit (or on
(Purchase on
account)
Account Journal)

Inventory Systems

Perpetual Inventory System Periodic Inventory System

•Updating of inventory is done every time •Updating of inventory is done periodically

there are changes in the quantity of the which is usually one or twice a year through
goods. (High Price – Low Volume) physical counting. (Low price – High Volume)

Journal Entries of each Inventory Systems:

a. Purchases
b. Sales Revenue

Transportation/Freight Costs
III. Activities
I. CROSSWORD PUZZLE. Read the clues below and fill in the correct answer.

Across: Down:
2. amount of merchandise sold by the business 1. 2/10, n/30
for a given period
4. FOB Shipping Point, FOB Destination 3. item bought by a business for the
purpose of reselling it
6. discount claimed by the buyer 5. cost of goods sold is deducted from
sales revenue
7. primary source of revenue in merchandising 8. trade discount, cash discount
business
9. goods available for sale by the business for a
particular accounting period

II. Prepare the journal entries of the following transactions for #LearnAsOne
Bookstore using perpetual and periodic inventory systems.
Feb. 01 Purchase merchandise from Beng Book costs P30,000 on which cash has
been paid immediately.
05 Returned P2,000 worth of defective merchandise. Cash is received upon
return of merchandise.
15 Sale on account has been made to School Office Supplies. Goods sold are
worth P10,000. Selling price is 20,000.
18 Sales worth P5,000 were returned by School Office Supplies as wrong
products have been delivered
20 The remaining balance of the receivable related to School Office Supplies
was collected
A. Periodic Inventory Systems

Date Transaction & Notes P. R. Debit Credit

B. Perpetual Inventory Systems

Date Transaction & Notes P. R. Debit Credit