Ma'am Madz

• This self-learning kit for Fundamentals of Accounting Business and Management 1 is designed specifically for ABM students in the Senior High School to develop and enhance their knowledge about accounting particularly the accounting cycle
• In this learning kit, the students will gain knowledge about the guidelines to be followed in recording the transactions in a merchandising business
• This knowledge is very important for ABM students to develop their bookkeeping skills which is an important requirement to pass the NCIII bookkeeping TESDA assessment
• Periodic inventory system


  Method of accounting for inventory
• Perpetual inventory system


  Method of accounting for inventory
• Recording purchases and related transactions under the Periodic Inventory System

  1. Debit Purchases account for cost of goods purchased

  2. Record purchase when goods are received

  3. Purchase supported by purchase invoice

  4. Only purchases of merchandise debited to Purchases account
• Purchase Returns and Allowances


  Account used when unsatisfactory goods are returned or an allowance is given
• Accounting for Freight Costs

  1. FOB Shipping Point - Buyer pays freight, debit Freight-In

  2. FOB Destination - Seller pays freight, debit Delivery Expense
• Purchase Discount


  Discount given for prompt payment of a balance due
• Recording of Sales and Related Transactions under the Periodic Inventory System

  1. Debit Accounts Receivable for credit sales, debit Cash for cash sales

  2. Credit Sales account for sale of goods held for resale
• Freight terms FOB Destination - Seller pays freight, debit Delivery Expense
• Freight terms FOB Shipping Point - No entry made by buyer regarding freight
• There are times when companies do not have sufficient cash to settle the liability
• It is best to avail of the discount because this will lower the cost and therefore increase the profit of the business
• FOB DESTINATION


  Seller pays freight
• Entry when seller pays the freight

  Debit — Delivery Expense and credit — Cash or Accounts Payable
• No entry is made if the buyer will pay for the freight
• Review the discussion on Accounting Concepts and Principles about revenue recognition principle
• Magaling paid MM Express, ₱500 to deliver the two units to Marie Cruz


  1. Debit — Freight Out

  2. Credit — Cash
• No entry will be made regarding the sale to Rafael Reyes since the term is FOB Shipping Point
• Sales Returns


  Customers are dissatisfied with merchandise and are allowed to return the goods to the seller for credit or a refund
• Sales Allowances


  Customers are dissatisfied, and the seller allows a deduction from the selling price
• To grant the return or allowance


  The seller prepares a credit memorandum to inform the customer that a credit has been made to the customer's account receivable
• Sales Returns and Allowances

  A contra revenue account to the Sales account
• A contra account is used, instead of debiting sales, to disclose the amount of sales returns and allowances in the accounts
• Excessive returns and allowances suggest inferior merchandise, inefficiencies in filling orders, errors in billing customers, and mistakes in delivery or shipment of goods
• Sales Returns and Allowances


  Normal balance is a debit
• Entry to record sales return or allowance

  1. Debit — Sales Return and Allowances

  2. Credit — Accounts Receivable (if a credit sale) or Cash (if a cash sale)
• Rafael Reyes returned one unit of the computers purchased last January 15, 2021 under Charge Invoice 001


  1. Debit — Sales Return & Allowances

  2. Credit — Accounts Receivable
• Entry to record the return of the unit


  1. Debit — Merchandise Inventory

  2. Credit — Cost of Goods Sold
• Sales Discount


  The offer of a cash discount to encourage customers to pay the balance at an earlier date
• Discount term example


  2/10, n/30 - 2% discount if payment is made within 10 days, no discount after 10 days and balance due in 30 days
• Sales Discounts

  A contra revenue account with a normal debit balance
• Magaling purchased 5 units of computers at ₱10,000 per unit on January 17, 2021 and sold them to Jun Cruz on January 18, 2021 under Charge Invoice No. 002 for ₱90,000 with terms 2/10, n/30, FOB Shipping Point

  1. Debit — Purchases

  2. Credit — Cash (to record purchase)

  3. Debit — Accounts Receivable

  4. Credit — Sales (to record sale)

  5. Debit — Cash

  6. Debit — Sales Discount

  7. Credit — Accounts Receivable (to record collection net of 2% discount)
• If Jun Cruz paid the account on January 30, 2021 instead of January 23, 2021, the entry would be to debit Cash and credit Accounts Receivable for the full ₱90,000 amount
• Determining Cost of Goods Sold under Periodic Inventory System


  1. Merchandise Inventory, Beginning

  2. Purchases

  3. Less: Purchases returns and allowances

  4. Purchases discounts

  5. Add: Freight in

  6. Cost of goods available for sale

  7. Merchandise Inventory, Ending

  8. Cost of goods sold
• In a periodic inventory system, separate ledger accounts are maintained for various items composing the cost of goods sold
• At the end of the accounting period, a physical count of inventory is necessary to establish the ending balance of the inventory
• Magaling purchased 20 computer units on account for ₱10,000 each on January 3, 2021


  1. Debit — Inventory (Merchandise Inventory)

  2. Credit — Accounts Payable
• One unit was damaged during shipment, Magaling returned it to the supplier

  1. Debit — Accounts Payable

  2. Credit — Inventory