abm reviewer

• Fundamentals of Accountancy, Business and Management 1 (FABM 1) is an introductory course in accounting, business, and management data analysis that will develop students' appreciation of accounting as a language of business and an understanding of basic accounting concepts and principles that will help them analyze business transactions
• Contents of 2nd Quarter


  • Journalizing of transactions using the general and special journals, namely: sales, purchase, cash receipts and cash payments journals
  • Posting to the general and subsidiary ledgers
  • Preparation of trial balance
  • Adjusting entries to include prepayments, accrual, and deferral
  • Worksheet preparation
  • Completing the accounting cycle of a merchandising business
• Merchandising Company

  An enterprise that buys and sells goods to earn a profit
• Merchandise or Merchandise Inventory

  Goods that are held for sale to customers in the normal course of business, including goods held for resale
• Merchandise for one firm may be a fixed asset (or property and equipment) for another
• Merchandiser's primary source of revenue

  Sales revenue or sales
• Expenses for a merchandising company

  • Cost of goods sold (COGS) - the total cost of merchandise sold during the period
  • Operating expenses (OP) - expenses incurred in the process of earning sales revenue that are deducted from gross profit in the income statement
• Merchandising Company operating cycle (cash to cash)

  1. Buy merchandise inventory

  2. Sell inventory

  3. Obtain Accounts Receivable

  4. Receive cash
• Journalizing the Transactions in A Merchandising Business

  1. Identify Transactions

  2. Prepare Journal Entries
• Special Journals

  Used to record voluminous quantities of similar and recurring transactions to eliminate congestion in the general journal
• Special Journals

  • Cash Receipts Journal
  • Cash Disbursements Journal
  • Sales Journal (Sales on Account Journal)
  • Purchase Journal (Purchase on Account Journal)
• Perpetual Inventory System

  Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs
• Periodic Inventory System

  Cost of goods sold is determined only at the end of an accounting period
• Recording purchases and related transactions under the Periodic Inventory System

  1. Purchases of Merchandise

  2. Purchase Returns and Allowances

  3. Accounting for Freight Costs

  4. Purchase Discounts
• Perpetual systems have traditionally been used by companies that sell merchandise with high unit values such as automobiles, furniture, and major home appliances
• With the use of computers and scanners, many companies now use the perpetual inventory system
• The perpetual inventory system is named because the accounting records continuously (perpetually) show the quantity and cost of the inventory that should be on hand at any time
• The periodic system only periodically updates the cost of inventory on hand
• A perpetual inventory system provides better control over inventories than a periodic inventory, since the records always show the quantity that should be on hand
• FOB (Free on Board)


  Seller pays freight costs. Ownership over the goods is transferred to the buyer once the goods are delivered and received by the buyer.
• Delivery Expense

  Debited if seller pays freight on outgoing merchandise to a buyer. This is an operating expense to the seller.
• Purchase Discount

  Credit terms that permit the buyer to claim a cash discount for the prompt payment of a balance due
• Credit terms

  • 2/10, n/30 (2% discount if paid within 10 days, otherwise due in 30 days)
• Revenue Recognition Principle

  Revenues are reported when earned, and in a merchandising company, revenues are earned when the goods are transferred from seller to buyer
• Sales Transactions

  Debit Accounts Receivable (credit sale) or Cash (cash sale), Credit Sales (increases revenues)
• Sales of assets not held for resale (such as equipment, buildings, land, etc.) are credited directly to the asset account
• Freight Terms: FOB Destination - Seller Pays Freight

  Debit Delivery Expense, Credit Cash or Accounts Payable
• Sales Returns and Allowances

  Contra revenue account that decreases revenues
• Recording Sales Returns and Allowances

  Debit Sales Returns and Allowances, Credit Accounts Receivable (credit sale) or Cash (cash sale)
• Sales Discount

  Offer of a cash discount to encourage customers to pay the balance at an earlier date
• Sales Discount Terms

  • 2/10, n/30 (2% discount if paid within 10 days, otherwise due in 30 days)
• Recording Sales Discount

  Debit Sales Discounts, Credit Cash
• Periodic Inventory System

  Separate ledger accounts are maintained for various items composing the cost of goods sold (Purchases, Purchase Returns & Allowances, Freight-In, Purchase Discounts). Physical count of inventory is necessary to establish the ending balance.
• Determining Cost of Goods Sold under Periodic Inventory System

  Beginning Inventory + Net Purchases - Ending Inventory = Cost of Goods Sold
• Agila Merchandising started operations on January 1, 2016
• Agila Merchandising issues Official Receipts, Charge Sales Invoices, and Check Vouchers
• Agila Merchandising's delivery vehicle purchased on January 2, 2016 is estimated to be useful for 10 years with no residual or salvage value
• Agila Merchandising's physical count of merchandise inventory on January 30, 2016 was PHP438,700
• Agila Merchandising received a statement of account from Gus Oil Center on January 30, 2016 for PHP2,180 in fuel purchases in January 2016 that were unpaid
• Posting to the General Ledger

  Entries from the special journals and general journals are posted to each general ledger account