POLYTECHNIC UNIVERSITY OF THE PHILIPPIN

STO. TOMAS BRANCH

ACCO 101
Financial Accounting and
Reporting 1
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Learning Objectives
After successful completion of this module, you
should be able to:
• Perform all the steps in the accounting cycle from
identifying and analyzing the effects of business
transactions of a merchandising business up to
construction of financial statements and closing of
books.
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Accounting Cycle: Merchandising Business
Merchandise business: One that purchases finished
products and resells them to consumers.
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Accounting Cycle: Merchandising Business
Inventory Systems:

Inventories are accounted for using either of the following

systems: perpetual system or periodic system.
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Accounting Cycle: Merchandising Business
Similar steps as that of the accounting cycle for service business
except with some noted differences for inventory-related entries.

1. Identifying and analyzing

2. Journalizing
3. Posting
4. Unadjusted trial balance
5. Adjusting entries
6. Adjusted trial balance
7. Financial statements
8. Closing entries
9. Post-closing trial balance
10. Reversing entries
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Accounting Cycle: Merchandising Business
Adjusting Entries – Periodic Inventory System
Apart from the list of adjusting entries for a service business,
merchandising business need to post adjustment related to the
physical count of inventory on hand (periodic inventory system):

Inventory, end xxx

Income Summary xxx
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Accounting Cycle: Merchandising Business
Closing Entries – Periodic Inventory System
Apart from the list of closing entries for a service business,
merchandising business also need to post closing of the
beginning inventory to income summary account.

Income Summary xxx

Inventory, Beginning xxx
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Accounting Cycle: Merchandising Business
Perpetual Inventory System
Nov 1 Provided P50,000 cash as initial investment to the business.
Nov 1 Acquired equipment for P18,000 cash. The equipment has a
useful life of 4 years.
Nov 1 Paid a one-year insurance premium of P6,000.
Nov 12 Purchased inventory costing P7,500 for cash.
Nov 14 Sold goods for P7,500 cash. The cost of sales is P1,000.
Nov 18 Purchased inventory for P1,000 on account.
Nov 26 Sold goods for P8,500 on account. The cost of sales if P3,000.
Nov 28 Paid P500 accounts payable.
Nov 29 Collected 5,000 accounts receivable.
Additional information: Of the total accounts receivable, P500 is doubtful of
collection. Salaries earned by employees not yet paid amounted to P5,000.
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Accounting Cycle: Merchandising Business
Periodic Inventory System
Nov 1 Provided P50,000 cash as initial investment to the business.
Nov 1 Acquired equipment for P18,000 cash. The equipment has a
useful life of 4 years.
Nov 1 Paid a one-year insurance premium of P6,000.
Nov 12 Purchased inventory costing P7,500 for cash.
Nov 14 Sold goods for P7,500 cash.
Nov 16 Returned P2,000 worth of inventory purchased on Nov 12.
Nov 18 Purchased inventory for P1,000 on account.
Nov 26 Sold goods for P8,500 on account.
Nov 28 Paid P500 accounts payable.
Nov 29 Collected 5,000 accounts receivable.
Additional information: Of the total accounts receivable, P500 is doubtful of
collection. Salaries earned by employees not yet paid amounted to P5,000.
Physical count of inventory revealed a P3,500 balance of inventory on hand.