FINANCIAL ACCOUNTING: MADE EASY
FINANCIAL
ACCOUNTING
1
FINANCIAL ACCOUNTING: MADE EASY
A Module on
BEC
FINANCIAL ACCOUNTING
Financial Accounting: Made Easy
2
FINANCIAL ACCOUNTING: MADE EASY
3
FINANCIAL ACCOUNTING: MADE EASY
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Unit 1-Introduction to Merchandising Business
Unlike service concern where the business generates income from
rendering of services to customers or clients, in merchandising business, it
generates revenue from sale of goods or commodities that it buys. The
business therefore could be a buyer at one hand and a seller on the other hand.
Basically, there are two (2) major activities that are involved in a merchandising
business; these are the buying and selling activities.
Learning Outcomes
At the end of this unit, you will be able to:
 Record transactions of a merchandising business in the journal.
 Post transactions in the T-accounts and prepare Trial Balance.
 Compute Input and Output Tax.
Pretest
TRUE OR FALSE
Instruction: Write “T” if the statement is correct and “F” if incorrect.
______ 1. Buying and selling are the primary activities of a merchandising business.
______ 2. Under merchandising concern, the business can be a buyer at one hand and
a seller on the other hand.
______ 3. The chart of accounts for merchandising concern is similar to service concern.
______ 4. There is only one ledger account to be maintained as Merchandise Inventory
for beginning and ending.
______ 5. Perpetual and Periodic are the two inventory systems of a merchandising
business.
______ 6. Freight-in is an adjunct to purchase account.
______ 7. Freight-out is neither cost nor asset to the business.
______ 8. Freight-out refers to transportation expense in buying merchandise from a
supplier.
______ 9.Freight-in refers to transportation expense in selling merchandise to a
customer.
______ 10. Under periodic inventory system, purchase of merchandise is debited to
“Purchases”.
FINANCIAL ACCOUNTING: MADE EASY
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Content
Inventory Systems
There are two (2) systems used in keeping of merchandise inventory records.
These are the Periodic and Perpetual Inventory Systems.
Under Periodic Inventory System
This system is characterized by the use of the following account titles:
Asset Accounts
Merchandise Inventory, End – this refers to the unsold merchandise at the end of the
accounting period as determined by physical counting or inventory taking. It is usually
dated December 31. The normal balance of the account is a debit.
Cost Accounts
Merchandise Inventory, Beginning – this refers to merchandise inventory at the
beginning of the period and is usually dated January 1 which will turn from an asset into
costs when such period ended. The account is usually credited in the adjustment.
Purchases – this account is debited when merchandise are purchased either in cash or
credit. This is recorded as follows:
Purchases
₱ xx
Cash/Accounts Payable
₱ xx
Purchase Discounts – this account is credited when there is discount availed from a
supplier for early payment of merchandise purchase on credit. This is recorded as
follows:
Accounts Payable
₱ xx
Purchase Discounts
Cash
₱ xx
xx
Purchase Returns and Allowances – this account is credited for merchandise
purchased either in cash or on credit that were returned to the supplier for reason of bad
order or does not fit to the description of the merchandise ordered and were not placed
due to non-availability of stocks of merchandise by the supplier. This is recorded as
follows:
₱ xx
Cash
Purchase Returns and Allowances
₱ xx
Freight-in – this account is debited for the freight and handling charges of merchandise
purchased by the buyer or customer and shipped via land, sea and air transportation.
This is recorded as follows:
Freight-in
₱ xx
Cash/Accounts Payable
₱ xx
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Income Accounts
Sales – this account is credited for merchandise sold either in cash or on credit. This is
recorded as follows:
Cash/Accounts Receivable
Sales
₱ xx
₱ xx
Sales Discounts – this account is debited for sales discount given to a customer for
early collection from his/her account. The receipt of cash is recorded a follows”
Cash
₱ xx
Sales Discounts
xx
Accounts Receivable
₱ xx
Sales Returns and Allowances – this account is debited for merchandise sold either in
cash or on credit but were returned by the customer for reason of bad order or does not
fit the description of the merchandise ordered and were not replaced due to nonavailability of stock. This is recorded as follows:
Sales Returns and Allowances
Cash/Accounts Receivable
₱ xx
₱ xx
Expense Account
Freight-out – this account is debited for freight and handing charges of merchandise
sold to customers and shipped via land, sea and air transportation. This is recorded as
follows:
Freight-out
₱ xx
Cash/Accounts Payable
₱ xx
There is only one (1) account for Merchandise Inventory in the General Ledger
under both periodic and perpetual inventory system. Under periodic, being an asset or
cost can only be identified by indicating Merchandise Inventory, end or Merchandise
Inventory, beginning.
Under Perpetual Inventory System
This is characterized by the use of Merchandise Inventory account as an asset
with the following debit and credit postings:
Merchandise Inventory
Debit
Credit
1. To record purchases
1. To record purchase returns and
2. To record freight-in
allowances
3. Excess of actual inventory
2. To record purchase discounts
against stock card
3. To record actual cost of goods sold
4. Excess of stock card against actual
inventory
FINANCIAL ACCOUNTING: MADE EASY
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Under this system, the use of stock card is a must. There is a continuous
updating of the ins and outs in the stock card every time there are purchases and sale of
merchandise. The quantity and amounts of the stock cards are being filled-up throughout
the accounting period or even the whole year round. It facilitates better control because
it provides information of merchandise inventory on hand.
The sample of filled-up stock card of only one (1) item is presented on Table 1.
Table 1
Sample Filled-up Stock Card
Supplier
Description
Date
Jan. 1
8
20
: Saranggani Cattle Ranch
: TOP ROUND BEEF
RECEIVED
Unit
Cost
Quantity
Amount
₱240
240
100
₱24,000
ISSUED
Quantity
Amount
₱19,200
80 kgs.
BALANCE
Quantity
Amount
50 kgs.
₱12,000
150 kgs.
36,000
70 kgs.
16,800
Cost of Sales
Ending
Inventory
Therefore, if perpetual inventory system is used, there is no need to establish
ending inventory because the stock cards reflect both the cost of sales of ₱19,200 and
the inventory at the end in the amount of ₱16,800. However, physical inventory count
may still be conducted to check the accuracy of the stock cards or control cards. If the
quantity and amount per stock card will not reconcile with that of the physical inventory
count, the inventory per physical count will prevail. An adjustment will be made so that
inventory per stock card will reconcile with that of the balance per physical count.
Moreover, there are two (2) things that you should be reminded of under Perpetual
Inventory System, and these are as follows:
1. In recording Sales, there are two (2) entries that must be prepared.
1st Entry:
Accounts Receivable
Sales
₱ xx
₱ xx
2nd Entry:
Cost of Sales
₱ xx
Merchandise Inventory
₱ xx
The second entry reduces the actual cost of gods sold.
FINANCIAL ACCOUNTING: MADE EASY
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2. In recording Sales Returns and Allowances, there must also be another two (2)
entries:
1st Entry:
Sales Returns & Allowances
Accounts Receivable
₱ xx
₱ xx
2nd Entry:
₱ xx
Merchandise Inventory
Cost of Sales
₱ xx
In the second entry, Merchandise Inventory was debited to
increase the Goods Available for Sale and credited Cost of Sales to effect
reduction of the Cost of Goods Sold.
The Use of Freight-in and Freight-out Accounts
Freight or transportation expense on merchandise purchased is recorded as a
debit to freight-in or transportation-in while merchandise sold is recorded as a debit to
freight-out or transportation-out. Freight-in is considered as part of cost and being added
to purchases account to arrive at the gross purchase while freight-out is considered as
business expenses.
Pro-forma Journal Entry
Buyer/Customer’s Book
Freight-in
₱ xx
Cash in Bank/Accounts Payable
₱ xx
Seller/Supplier’s Book
Freight-out
₱ xx
Cash in Bank/Accounts Payable ₱ xx
Discount Terms
The following are the common discount terms both for purchases and sales.
a. 2/10, N/30 – this means that if the account is paid/collected within 10 days from
the date of the invoice, a 2% discount can be availed or given and no discount if
the account is paid/collected after the 10th day or from the 11th to 30th days.
2/10, 1/20, N/30 – this means that a 2% discount can be availed or given if the
account is being paid/collected within 10 days from the invoice date, 1% if
paid/collected from the 11th to 20th days and no discount if paid/collected from the
21st to the 30th day.
b. 2/10, EOM – this means that a 2% discount can be availed or given if the
account is paid/collected 10 days after the End of the Month.
FINANCIAL ACCOUNTING: MADE EASY
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Cash Discounts and Trade Discounts
The term Cash Discounts has two connotations. It can either be a purchase
discounts or sales discounts depending upon from whose point of view the term is used.
From the viewpoint of the buyer, it is called purchase discounts and from the seller’s
viewpoint, it is called sales discounts. In either way, cash discounts are inducements to
both buyer and seller for prompt payment or prompt collection of account purchase and
account sales. Both purchase discounts and sales discounts are recorded in the books
of the business.
Example: Amount of merchandise, ₱50,000 and 2% cash discount is given if
paid/collected within 10 days. The deadline for payment was met.
Computation:
Amount of Merchandise
Less: 2% Cash Discount (30,000 x 2%)
Net Amount paid/collected
₱ 30,000
600
₱ 29,400
Unlike cash discounts, Trade Discounts are spot discounts or outright discounts
from cash or account sales that a buyer or seller can avail but are not recorded in the
books of the business.
Example: 2% trade discount on merchandise purchased/sold amounting to
₱30,000.
Computation:
List Price
Less: Trade Discount (2% x 30,000)
Invoice Price
₱ 30,000
600
₱ 29,400
Credit Memorandum and Debit Memorandum
The use of the business term credit memorandum and debit memorandum
depends upon whose viewpoint the terms are used. Credit memorandum is taken from
the viewpoint of the seller or supplier who is the creditor. Since the merchandise sold on
account was recorded by the seller/supplier as a debit to Accounts Receivable in its
book, the merchandise returned by the buyer will be recorded as a credit to the same
account to effect reduction of receivable. Hence, the document issued to is called credit
memorandum.
Debit memorandum is taken from the viewpoint of the buyer/customer who is the
debtor. Since the merchandise bought on account was recorded by the buyer/customer
as a credit to Accounts Payable in its book, the merchandise returned by the
buyer/customer will be recorded as a debit to the same account to effect the reduction of
payable. The comparative journal entries are shown in Table 2.
FINANCIAL ACCOUNTING: MADE EASY
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Table 2
Comparative Journal Entries of Credit and Debit Memo
COMPARATIVE JOURNAL ENTRIES
Seller or Supplier’s Book (Credit Memo)
Buyer or Customer’s Book (Debit Memo)
Upon sale of merchandise:
Accounts Receivable
₱xx
Sales
₱xx
Upon purchase of merchandise:
Purchases
₱xx
Accounts Payable
₱xx
Upon return of the merchandise sold:
Sales Returns and Allowances ₱xx
Accounts Receivable
₱xx
Upon return of the merchandise purchased:
Accounts Payable
₱xx
Purchase Returns & Allowances ₱xx
CREDIT MEMORANDUM
DEBIT MEMORANDUM
We credit your account for the return of
merchandise sold on account.
We debit your account for the return of
merchandise purchase on account.
Supplier/Creditor
Customer/Debtor
Illustrative Problem
This will illustrate Journalizing, Posting and the preparation of a Trial Balance
under Periodic Inventory System. For better understanding and for expediency
purposes, the page number is used instead of account number:
Louien Distributors
Chart of Accounts
Assets
Page No.
1
2
3
4
5
6
7
8
9
Cash in Bank
Accounts Receivable
Estimated Uncollectible Accounts
Merchandise Inventory
Supplies Inventory
Property and Equipment
Furniture and Equipment
Acc. Dep’n- Furniture and Equipment
Transportation Equipment
Acc. Dep’n- Transportation Equipment
10
11
Liability
Accounts Payable
Accrued Expense
12
13
14
Owner’s Equity
L. Dangase, Capital
L. Dangase, Drawing
Income & Expense Summary
Income
Page No.
15
16
17
Sales
Sales Discounts
Sales Returns & Allowances
18
19
20
21
Costs
Purchases
Purchase Discounts
Purchase Returns & Allowances
Freight-in
22
23
24
25
26
27
28
29
Expenses
Freight-out
Salaries Expense
Utilities Expense
Taxes and Licenses
Supplies Expense
Rental Expense
Uncollectible Account
Depreciation Expense
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Ms. Louien Dangase, after retiring from his business venture with Mr. Louie
Villarama has decided to start with a business of her own under the trade name Louien
Distributors. The following are the transactions for the month of February 2020.
Feb. 1
-
Ms. Dangase invested the following:
a) Bank deposit with Banco de Oro, ₱850,000.
b) Merchandise with a fair value of ₱250,000.
c) Furniture and Equipment with a fair value of ₱1,500,000.
d) Service vehicle with a fair value of ₱1,800,000.
e) Supplies Inventory valued at ₱15,000.
2
-
Purchased merchandise in cash from M. Quintero Co. costing ₱150,000
and paid freight and handling, ₱2,500.
3
-
Returned ₱3,000 cost of merchandise to M. Quintero Co. due to some
defects and no replacements have been made.
5
-
Sold merchandise for cash, ₱120,000 to Carlala Grocery and gave a 3%
trade discount and paid freight in on shipment, ₱3,500.
7
-
Purchased merchandise on account from Clarita Co., ₱50,000.
Term: 3/10, N/30.
8
-
Sold merchandise on account to Isabelle Trading, ₱185,000.
Term: 2/10, N/30. Paid freight on shipment, ₱1,200.
9
-
Purchased merchandise on account from J. Palapar & Sons costing
₱230,000. Term: 2/10, EOM.
10 -
Received ₱4,000 worth of merchandise from Isabelle Trading for not
conforming with the order and was not replaced.
12 -
Paid the account with Clarita Co., ₱48,500 after availing of the 3%
purchase discount.
13 -
Sold merchandise on account to M. Suzada Co., ₱80,000.
Term: 2/10, N/30.
15 -
Purchased merchandise on account from T. Ciudadano Enterprises,
₱70,000. Term: 3/10, N/30.
18 -
Returned ₱1,500 cost of merchandise to T. Ciudadano Enterprises due
to bad order and was not replaced.
-
Collected in full the account of Isabelle Trading, to ₱177,380.
20 -
Sold merchandise for cash, ₱50,000 to R. Valle Enterprises and gave a
1% trade discount.
22 -
Received ₱500 worth of merchandise from R. Valle Enterprises as item
breakage and was not replaced due to out of stock.
FINANCIAL ACCOUNTING: MADE EASY
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23 -
Collected from M. Suzada Co. the amount of ₱78,400 net of 2% discount
on Aug. 13 sales on account.
26 -
Sold merchandise on account to R. Ju Commercial, ₱420,000.
Term: 3/10, EOM.
28 -
Paid the following expenses:
Salaries for the month
Light & Water Bills (Utilities Expense)
Taxes & Licenses
Rent Expense
Total
₱ 15,000
5,800
6,500
10,000
₱ 37,300
-
Withdrew ₱20,000 for personal use of L. Dangase.
-
Sold merchandise on account to J. Pondoc Superstore, ₱35,000.
Term: 2/10, N/30.
The transactions are being recorded in the General Journal as shown in Table 3.
1st Step: Journalizing
Table 3
General Journal
2020
Feb. 1
2
3
5
Particulars
Cash in Bank
Merchandise Inventory
Supplies Inventory
Furniture & Equipment
Transportation & Equipment
L. Dangase, Capital
Investment of L. Dangase.
Folio
GJ – 1
GJ – 4
GJ – 5
GJ – 6
GJ – 8
GJ– 12
Debit
850,000
250,000
15,000
1,500,000
1,800,000
Purchases
Cash in Bank
Purchase of merchandise for cash.
GJ –18
GJ – 1
150,000
Freight-in
Cash in Bank
Payment of freight.
GJ – 21
GJ – 1
2,500
Cash in Bank
Purchase Returns & Allowances
Return of merchandise purchased.
GJ – 1
GJ – 20
3,000
Cash in Bank
Sales
Sale of merchandise w/ a discount.
GJ – 1
GJ – 15
116,400
Freight-out
Cash in Bank
Freight on merchandise sold.
GJ – 22
GJ – 1
3,500
Credit
4,415,000
150,000
2,500
3,000
116,400
3,500
FINANCIAL ACCOUNTING: MADE EASY
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8
9
10
12
13
15
18
22
23
10
Purchases
Accounts Payable – Clarita Co.
Purchase of merchandise on account.
GJ – 18
GJ – 10
50,000
Accounts Receivable – Isabelle Trading
Sales
Merchandise sold on account.
GJ – 2
GJ – 15
85,000
Freight-out
Cash in Bank
Freight of shipment.
GJ – 22
GJ – 1
1,200
Purchases
Accounts Payable – J. Palapar & Sons
Purchase of merchandise on account.
GJ – 18
GJ – 10
230,000
Sales Returns & Allowances
Accounts Receivable-Isabelle Trading
Return of merchandise sold on account.
GJ – 17
GJ – 2
4,000
Accounts Payable- Clarita Co.
Purchase Discounts
Cash in Bank
Payment with a discount.
GJ – 10
GJ – 19
GJ – 1
50,000
Accounts Receivable – M. Suzada Co.
Sales
Merchandise sold on account.
GJ – 2
GJ – 15
80,000
Purchases
Accounts Payable – T. Ciudadano
Purchase of merchandise on account.
GJ – 18
GJ – 10
70,000
Accounts Payable – T. Ciudadano
Purchase Returns & Allowances
Return of merchandise purchased.
GJ – 10
GJ – 20
1,500
Cash in Bank
Sales Discount
Accounts Receivable- Isabelle Trading
Collection in full.
GJ – 1
GJ – 16
GJ –2
177,380
3,620
Cash in Bank
Sales
Sale of merchandise w/ trade discount.
GJ – 1
GJ – 15
49,500
Sales Returns & Allowances
Cash in Bank
Return of merchandise sold for cash.
GJ – 17
GJ – 1
500
Cash in Bank
Sales Discount
Accounts Receivable- M. Suzada Co.
GJ – 1
GJ – 16
GJ –2
78,400
1,600
50,000
85,000
1,200
230,000
4,000
1,500
48,500
80,000
70,000
1,500
181,000
49,500
500
80,000
FINANCIAL ACCOUNTING: MADE EASY
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Collection from sales on account.
26
28
Accounts Receivable – M. Suzada Co.
Sales
Sales on account.
GJ – 2
GJ – 15
420,000
Salaries Expense
Utilities Expense
Taxes & Licenses
Rental Expense
Cash in Bank
Paid various expenses.
GJ – 23
GJ – 24
GJ – 25
GJ – 27
GJ – 1
15,000
5,800
6,500
10,000
L. Dangase, Drawing
Cash in Bank
Withdrawal by the owner.
GJ – 13
GJ – 1
20,000
Accounts Receivable – J. Pondoc Superstore
Sales
Sales on account.
GJ – 2
GJ – 15
35,000
420,000
37,300
20,000
35,000
After recording the transactions in the General Journal, the second step is
posting the entries in the General Journal to the General Ledger. (T-Account are used)
2nd Step: Posting
ASSETS
1)
Cash in Bank
2/1
850,000 150,000
2/3
3,000
2,500
2/5
116,400
3,500
2/18
177,380
1,200
2/20
49,500
48,500
2/28
78,400
500
37,300
20,000
Debit
1,274,680 263,500
Balance 1,011,180
4)
5)
Merchandise Inventory
2/1
250,000
Debit
250,000
Balance
Supplies Inventory
2/6
15,000
Debit 15,000
Balance
2)
2/2
2/2
2/5
2/8
2/12
2/22
2/28
2/28
Accounts Receivable
2/8
185,000
4,000
2/13
80,000 181,000
2/26
420,000
80,000
2/28
35,000
720,000 265,000
Debit
455,000
Balance
2/10
2/18
2/23
6)
Furniture and Equipment
2/1
1,500,000
Debit
1,500,000
Balance
8)
Transportation Equipment
2/1
1,800,000
Debit
1,800,000
Balance
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LIABILITY
10)
2/12
2/18
Accounts Payable
50,000
50,000
1,500
230,000
70,000
51,500
350,000
298,500
2/1
2/9
2/15
Credit
Balance
CAPITAL
12)
L. Dangase, Capital
4,415,000 2/2
4,415,000 Credit
Balance
13)
L. Dangase, Drawing
2/28
20,000
Debit
20,000
Balance
INCOME
15)
Sales
116,400
185,000
80,000
49,500
420,000
35,000
885,900
17)
2/5
2/8
2/13
2/20
2/26
2/28
Credit
Balance
16)
Sales Discount
2/18
2,620
2/23
1,600
Debit
5,220
Balance
Sales Returns & Allowances
2/10
4,000
2/22
500
Debit
4,500
Balance
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COSTS
18)
2/2
2/7
2/9
2/15
Debit
Balance
20)
Purchases
150,000
50,000
50,000
70,000
500,000
19)
Purchase Returns & Allowances
3,000
2/5
1,500
2/8
4,500
Credit
Balance
21)
Purchase Discounts
1,500
2/12
1,500
Credit
Balance
Freight-In
2/18
2,620
Debit
2,620
Balance
EXPENSES
22)
24)
Freight-out
2/5
3,500
2/8
1,200
Debit
4,700
Balance
Utilities Expense
2/28
5,800
Debit
5,800
Balance
27)
2/28
Debit
Balance
23)
Salaries Expense
2/28
15,000
Debit
15,000
Balance
25)
Taxes and Licenses
2/28
6,500
Debit
6,500
Balance
Rent Expense
10,000
10,000
3rd Step: Trial Balance
A trial balance is then prepared observing the debit and credit account balances
in the General Ledger (T-Account).
FINANCIAL ACCOUNTING: MADE EASY
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Louien Distributors
Trial Balance
February 28, 2020
Page No.
1
2
4
5
6
8
10
12
13
15
16
17
18
19
20
21
22
23
24
25
27
Account Titles
Cash in Bank
Accounts Receivable
Merchandise Inventory
Supplies Inventory
Furniture & Equipment
Transportation Equipment
Accounts Payable
L. Dangase, Capital
L. Dangase, Drawing
Sales
Sales Discounts
Sales Returns & Allowances
Purchases
Purchase Discounts
Purchase Returns & Allowances
Freight-In
Freight-Out
Salaries Expense
Utilities Expense
Taxes & Licenses
Rent Expense
Total
Debit
1,011,180
455,000
250,000
15,000
1,500,000
1,800,000
Credit
298,500
4,415,000
20,000
885,900
5,220
4,500
500,000
1,500
4,500
2,500
4,700
15,000
5,800
6,500
10,000
5,605,400
_______
5,605,400
Accounting for Value-Added Tax
VAT is not entirely a new concept of business taxation but is just another form of
tax levied on a wide range of goods and services. Specifically, it means “tax on the
value-added” by every seller to purchase of goods and services. The approval of R.A.
9337 No. 14-2005, removes the VAT exemption of several formerly, exempt section of
our economy. Thus, the burden of taxation is now shared more equitably. The approval
has increased VAT from 10% to 12% effective February 2006.
The difference between out Output Tax, the tax on our sales and Input Tax, the
tax on our purchases is our VAT Payable which will then be remitted to the Bureau of
internal Revenue within 25 days after the end of each month. Input Tax and Prepaid Tax
are presented in the Current Asset section of the Balance Sheet while Output Tax and
VAT Payable are presented in the Current Liability section of the Balance Sheet Date.
The revenue regulation also emphasizes that VAT Input/Output should be shown
separately in the invoices.
Purchasing Activity
Application of VAT on purchases and related accounts
For Cash Purchases
1) Bought merchandise for cash from P. Tao Grocery, 100,000 plus 12% VAT.
FINANCIAL ACCOUNTING: MADE EASY
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Journal Entry:
Purchases
Input Tax
Cash in Bank
100,000
12,000
112,000
Observation:
The actual cost of merchandise purchased was 100,000. However, our
supplier added 12% VAT to the cost of what we purchased which is ₱12,000
(100,000 x 12% = 12,000). Thus we pay 112,000 (100,000 + 12,000). The
amount of 12,000 which our supplier added to the cost of our purchases is called
Input Tax. It has a normal balance of debit because it is an Asset.
For Account Purchases
2) Bought merchandise on account from J. Alegado Mall, ₱75,000 plus 12% VAT.
Term: 2/10, N/30.
Journal Entry:
Purchases
Input Tax
Accounts Payable
75,00
9,000
84,000
Return of Merchandise Purchased in Cash
3) Return ₱5,000 cost of merchandise bought for cash from P. Tao Grocery for not
conforming with order and was not replaced. VAT is 12%.
Journal Entry:
Cash in Bank
Purchase Returns and Allowances
Input Tax
5,600
5,000
600
Observation:
When we returned the ₱5,000 cost of what we purchased because there
was no replacement, we should also remove the 12% VAT therefrom. Since
Input Tax has a normal balance of a debit, it is also being credited by 600 to
effect the decrease (₱5,000 x 12% =₱600).
Return of Merchandise Purchased on Account
4) Return ₱10,000 cost of merchandise bought on account from J. Alegado Mall for
not conforming with the order and was not replaced. VAT is 12%.
Journal Entry:
Accounts Payable
Purchase Returns and Allowances
Input Tax
11,200
10,000
1,200
FINANCIAL ACCOUNTING: MADE EASY
16
Payment of Account with a Discount
5) Payment of account with J. Alegado Mall within the discount period.
Journal Entry:
Accounts Payable
Purchase Discounts
Input Tax
Cash in Bank
72,800
1,300
156
71,344
Observation:
The purchase discount availed is ₱1,300 (₱75,000-₱10,000=₱65,000x
2%=₱1,300) and VAT Input Tax is ₱156 (₱1,300 x 12%). As a result, Input Tax
registers a debit balance of ₱19,044 (₱12,000+9,000-1,200-156=₱19,044) or it
can be gleaned from the T-account:
1)
2)
Input Tax
12,000
600
9,000
1,200
156
21,000
1,956
19,044
3)
4)
5)
Selling Activity
Application of VAT on Sales and the Related Accounts
For Sales on Cash
1) Sold merchandise for cash to Matero Convenience Center, ₱190,000 plus 12%
VAT.
Journal Entry:
Cash in Bank
Sales
Output Tax
212,800
190,000
22,800
Observation:
The actual amount of merchandise we sold is ₱9,000. However, we add 12%
VAT to our sales which is ₱22,800 (₱190,000 x 12%). Thus, we collect ₱212,800
(₱190,000 + ₱22,800). The amour of ₱22,800 which we add to our Sales is called an
“Output Tax”. It has a normal balance of a credit being a liability account.
For Sales on Account
2) Sold merchandise on account to E. Detoya & Sons, ₱180,000 plus 12% VAT.
Term: 2/10, N/30.
FINANCIAL ACCOUNTING: MADE EASY
17
Journal Entry:
Accounts Receivable
Sales
Output Tax
201,600
180,000
21,600
Received Merchandise Sold for Cash and Returned by a Customer
3) Received ₱6,000 worth of merchandise returned by Matero Convenience Center
due to bad order. It was not replaced, so it is refunded. VAT is 12%
Journal Entry:
Sales Returns & Allowances
Output Tax
Cash in Bank
6,000
720
6,720
Observation:
When we received the ₱60,000 worth of merchandise returned by our customer,
we also have to remove the 12% VAT therefrom. Since Output Tax has a normal
balance of a credit being a liability, it is also being debited by ₱720 to effect the
decrease (₱6,000 x 12%).
Received Merchandise Sold on Account and Returned by a Customer
4) Received 10,000 worth of merchandise returned by E. Detoya & Sons and was
not replaced. VAT is 12%
Journal Entry:
Sales Returns & Allowances
Output Tax
Accounts Receivable
10,000
1,200
11,200
Collected the Account with a Discount
5) Collected the account of E. Detoya & Sons within the discount period.
Journal Entry:
Cash in Bank
186,592
Sales Discounts
3,400
Output Tax
408
Accounts Receivable
190,400
Observation:
The sales discount availed is ₱3,400 (₱180,000 – ₱10,000=₱170,000 x 12% =
₱3,400) and Output Tax is ₱408 (₱3,400 x 12%). As a result, Output Tax registers a
credit balance of ₱42,072 (₱22,800+21,600-720-1,200-408) or it can gleaned from the
T-account:
FINANCIAL ACCOUNTING: MADE EASY
3)
4)
5)
Output
720
1,200
408
2,328
Tax
22,800
21,600
18
1)
2)
44,400
42,072
Closing of the Input Tax against Output Tax
The Input Tax of ₱19,044 is closed against Output Tax of ₱42,072 and the
difference of ₱23,028 is the VAT Payable. In an instance wherein Input Tax shows a
bigger balance than the Output Tax, the amount of difference is called is called Prepaid
Tax. This is being brought forwarded to the next month. No remittance until Output Tax
exceeds Input Tax.
Journal Entry:
Output Tax
Input Tax
VAT Payable
42,072
19,044
23,028
Remittance of VAT Payable to the Bureau of Internal Revenue
VAT Payable of ₱23,028 represents the amount that we should remit to the
Bureau of Internal Revenue.
Journal Entry
VAT Payable
Cash in Bank
23,028
23,028
Extended Illustration: Periodic vs Perpetual Inventory Systems
To illustrate between the use of Periodic and Perpetual Inventory Systems, let us
assume the following transactions to have been taken from Ma-a Enterprises:
Transaction No.
1
2
3
4
5
6
Purchased on account, 1,000 units @ ₱50.
Paid freight on purchases, ₱600.
Purchase returns, 20 units @ ₱50.
Sold on account, 700 units @ ₱100.
Sales returns, 10 units @ ₱50.
Actual inventory through physical count, 275 units.
FINANCIAL ACCOUNTING: MADE EASY
19
Comparative Journal Entries
Periodic
70,000
70,000
Perpetual
Merchandise Inventory
Accounts Payable
(Perpetual uses “Merchandise
Inventory”)
Merchandise Inventory
Cash
(Perpetual debits “Merchandise
Inventory”)
Accounts Payable
Merchandise Inventory
(Perpetual credits “Merchandise
Inventory” to reduce Inventory)
Accounts Receivable
Sales
35,000
35,000
1,000
1,000
Cost of Sales
Merchandise Inventory
(Perpetual made two entries.
The second entry reduces the
actual cost of goods sold, 700
units @ 50).
Sales Returns
Accounts Receivable
Merchandise Inventory
Cost of Sales
(Perpetual made two entries. In
the second entry, Merchandise
Inventory was debited to
increase the Goods Available
for Sale and credited to Cost of
Sales to effect reduction of the
Cost of Goods Sold.)
Inventory short or over
Merchandise Inventory
(Under Perpetual Inventory
System, the difference between
inventory per stock card of
15,100 and actual inventory per
count of 13,750 which is 1,350
is debited to inventory short or
over account which is computed
as follows:
500
500
1
Purchases
Accounts Payable
(Periodic uses “Purchases”)
50,000
50,000
2
Freight-in
Cash
(Periodic debits “Freight-in”)
600
Accounts Payable
Purchase Returns
(Periodic credits “Purchase
Returns” to reduce “Purchases”
Accounts Receivable
Sales
(Periodic credits “Sales”
1,000
1,000
3
4
5
6
Sales Returns
Accounts Receivable
(Periodic debits “Sales Returns”
to reduce its account “Sales”)
Merchandise Inventory, End
Income & Expense Summary
(Inventory at the end was set up
based on the actual physical
counting.)
600
13,750
13,750
Available for Sale:
Purchases
50,000
Freight-in
600
Purchase Return
(1,000)
Less: Cost of Sales (35,000 – 500)
Inventory end, per stock card
Inventory, end per physical count
Inventory short or over
50,000
50,000
600
600
1,000
1,000
70,000
70,000
1,000
1,000
1,350
1,350
49,600
34,500
15,100
13,750
1,350
FINANCIAL ACCOUNTING: MADE EASY
20
Learning Activity No. 1: Journalizing, Posting and Trial Balance Preparation
Directions: Prepare the following requirements. Journalize the transactions in the
General Journal provided below the problem. Post the T-accounts and
prepare the Trial Balance in the space provided.
Requirements:
1. Journalize the transactions in a Journal.
2. Make a T-account for the following:
Cash in Bank
Accounts Receivable
Merchandise Inventory
Accounts Payable
C. Quintero, Capital
Sales
Sales Discounts
Purchases
Purchase Discount
Freight-in
Freight-out
3. Post directly to their respective T-accounts the analyzed transaction.
4. Foot the T-account and prepare a Trial Balance.
The following transactions relate to purchasing and selling activities of Mindanao
Grocery for the month of July 2020 with balances of the given accounts:
Cash in Bank
100,000
Accounts Receivable
20,000
Merchandise Inventory
160,000
Accounts Payable
30,000
C. Quintero, Capital
250,000
Transaction No.
1
2
3
4
5
6
7
8
9
10
Transactions
Bought merchandise for cash, ₱50,000 and availed 2% trade
discounts. Paid freight of ₱1,000.
Bought merchandise on account from L. Dangase Co., ₱30,000.
Term: 2/10, N/30.
Sold merchandise for cash, ₱40,000 and gave a 2% trade discount.
Paid freight of ₱500.
Sold merchandise on account to C. Carpeso Co., ₱50,000.
Term: 3/10, N/30. Paid freight of ₱800.
Bought merchandise on account from C. Ombo Co., ₱30,000.
Term: 2/10, N/30. Paid freight of ₱800.
Paid the account in transaction #2 and availed the purchase
discount.
Sold merchandise on account to N. Ramirez Co., ₱30,000.
Term: 3/10, N/30.
Collected the account of transaction No. 4 and availed of the sales
discount.
Bought merchandise on account to N. Tuble Co., ₱20,000.
Term: 2/10, N/30. Paid freight of 1,000.
Bought merchandise for cash, ₱25,000. Paid freight of ₱800.
FINANCIAL ACCOUNTING: MADE EASY
21
GENERAL JOURNAL
Date
Particulars
Folio
Debit
Credit
FINANCIAL ACCOUNTING: MADE EASY
Date
GENERAL JOURNAL
Particulars
22
Folio
Debit
Credit
FINANCIAL ACCOUNTING: MADE EASY
POSTING OF T-ACCOUNTS
23
FINANCIAL ACCOUNTING: MADE EASY
24
POSTING OF T-ACCOUNTS
TRIAL BALANCE PREPARATION
Name of Company
Title of Report
Date of the Report
FINANCIAL ACCOUNTING: MADE EASY
25
Learning Activity No. 2: Computation of Input and Output Tax
Directions: Compute and indicate the following requirements. Show your solution and
put your answer on the space provided below the problem.
Problem:
The following selected account balances were taken from the records of
L. Dangase Company, for the month of August 2020. (VAT of 12% is billed
separately)
Purchases
Purchase Returns and Allowances
Purchase Discounts
Sales
Sales Returns and Allowances
Sales Discounts
100,000
10,000
5,000
80,000
6,000
7,000
Required:
1. Compute the Input Tax.
2. Compute the Output Tax.
3. Compute the VAT Payable.
4. Entry to close the Input and Output Tax.
5. Entry to remit VAT Payable to Bureau of Internal Revenue.
INPUT TAX COMPUTATION
OUTPUT TAX COMPUTATION
FINANCIAL ACCOUNTING: MADE EASY
VAT PAYABLE COMPUTATION
ENTRY TO CLOSE THE INPUT AND OUTPUT TAX
ENTRY TO REMIT VAT PAYABLE TO BIR
26
FINANCIAL ACCOUNTING: MADE EASY
27
Assessment
A. Journalizing, Trial Balance and Trial Balance Preparation
Directions: Prepare the following requirements. Journalize the transactions in the
General Journal provided below the problem. Post the T-accounts and
prepare the Trial Balance in the space provided.
The following were the narrative transactions of Louie’s Commercial owned by
Atty. Mark Lloyed L. Dangase, CPA.
Requirements:
1. Journalize the transactions in a Journal.
2. Make T-account for the following:
Cash in Bank
Accounts Receivable
Merchandise Inventory
Accounts Payable
M. Dangase, Capital
Sales
Sales Discounts
Sales Returns & Allowances
Purchases
Purchase Discounts
Purchase Returns & Allowances
Freight-in
Freight-out
3. Post directly to their respective T-accounts the analyzed transaction.
4. Foot the T-account and prepare a Trial Balance.
Opening Balance as of January, 2020
Cash in Bank
950,000
Accounts Receivable
120,000
Merchandise Inventory
150,000
Accounts Payable
130,000
M. Dangase, Capital
1,090,000
Date
Jan. 1
2
3
-
Transactions
Purchased merchandise on account from E. Montero Marketing,
₱80,000. Term: 2/20, N/30.
-
Returned to E. Montero Marketing merchandise costing ₱2,000 due to
bad order and was not replaced.
-
Sold merchandise for cash to N. Bandialan Co. and gave 3% trade
discount, ₱50,000. Paid freight on shipment, ₱380.
-
Collected in full the amount of ₱120,000 less 2% discount on Jan. 1,
2020 balance.
FINANCIAL ACCOUNTING: MADE EASY
28
-
Received form N. Bandialan Co., ₱2,000 cost of merchandise returned
due to some defects and no replacement has been made.
4
-
Sold merchandise on account to E. Jardinel Enterprises, ₱350,000.
Term: 2/15, N/30. Paid freight of ₱200.
5
-
Paid our account less 2% discount, ₱130,000 on Jan. 1, 2020 balance.
6
-
Returned merchandise costing ₱800 from E. Jardinel Enterprises due to
damage in shipment and was not replaced.
7
-
Purchased merchandise on account from G. Albofera Trading, ₱80,000.
Term: 3/10, N/30.
8
-
Purchase merchandise for cash from L. Cacho Co., ₱40,000 and availed
3% trade discount. Paid ₱350 for freight and shipping expenses.
10 -
Sold merchandise on account from L. Ramos Enterprises, ₱100,000.
Term: 3/15, N/30.
17 -
Paid in full the account of G. Albofera Trading net of discount.
19 -
Paid in full the account with E. Montero Marketing net of purchase returns
and discount.
-
Collected from E. Jardinel Enterprises, ₱34,316 after deducting the sales
returns and discounts.
20 -
Purchased merchandise in cash from E. Sanchez Marketing, ₱65,000
and avail 7% trade discount.
21 -
Returned to E. Sanchez Marketing merchandise costing ₱2,500 and was
replaced. Paid freight of ₱150. (The only journal entry necessary is the
payment of freight).
22 -
Sold merchandise on account from M. Ellevera Trading, ₱15,000.
Term: 3/10, N/30.
24 -
Received ₱3,000 cost of merchandise returned by M. Ellevera Trading
due to bad order and was replaced immediately, (No entry needed).
25 -
Collected in full the account of L. Ramos Enterprises on Jan. 10.
27 -
Sold merchandise for cash to W. Guillermo Store, ₱20,000 and was
given 3% trade discount.
30 -
Purchase merchandise in cash from E. Pugoy Enterprises, ₱3,500 and
availed 5% trade discount.
FINANCIAL ACCOUNTING: MADE EASY
29
GENERAL JOURNAL
Date
Particulars
Folio
Debit
Credit
FINANCIAL ACCOUNTING: MADE EASY
Date
GENERAL JOURNAL
Particulars
30
Folio
Debit
Credit
FINANCIAL ACCOUNTING: MADE EASY
31
GENERAL JOURNAL
Date
Particulars
Folio
Debit
Credit
FINANCIAL ACCOUNTING: MADE EASY
POSTING OF T-ACCOUNTS
32
FINANCIAL ACCOUNTING: MADE EASY
33
POSTING OF T-ACCOUNTS
TRIAL BALANCE PREPARATION
Name of Company
Title of Report
Date of the Report
FINANCIAL ACCOUNTING: MADE EASY
34
B. Computation of Input and Output Tax
Directions: Compute and indicate the following requirements. Show your solution and
put your answer on the space provided below the problem.
Problem:
The following selected account balances were taken from the records of
L. Villarama, the owner of Dipolog Hardware & Construction Supply for the month
of December 31, 2019. (VAT of 12% is billed separately)
Purchases
Purchase Returns and Allowances
Purchase Discounts
Sales
Sales Returns and Allowances
Sales Discounts
710,000
5,000
20,000
1,020,000
8,000
25,000
Required:
1. Compute the Input Tax.
2. Compute the Output Tax.
3. Compute the VAT Payable.
4. Entry to close the Input and Output Tax.
5. Entry to remit VAT Payable to Bureau of Internal Revenue.
INPUT TAX COMPUTATION
OUTPUT TAX COMPUTATION
FINANCIAL ACCOUNTING: MADE EASY
VAT PAYABLE COMPUTATION
ENTRY TO CLOSE THE INPUT AND OUTPUT TAX
ENTRY TO REMIT VAT PAYABLE TO BIR
35
FINANCIAL ACCOUNTING: MADE EASY
36
UNIT 2 – MERHANDISE INVENTORY AND COST OF SALES (Periodic Inventory
System)
MERCHANDISE INVENTORY
Under Merchandising concern, the business is engaged in buying and selling of goods
or commodities. In the process, not all goods that are purchased can be sold. The goods
that are left unsold ate the end of the period are called Merchandise inventory. Usually,
for a business to start for the first time, there is no Merchandise Inventory, beginning.
The two (2) classes of merchandise inventory, Merchandise Inventory at the start of the
period which is called Merchandise Inventory, Beg. and the Merchandise Inventory ta
the end of the period which is called Merchandise Inventory, End. Merchandise
Inventory is priced at cost and not at selling price.
COST OF SALES
If you remember, under the periodic inventory system, the merchandise that we
purchased is debited to Purchases which is a Cost by nature. At the end of the period, a
physical counting of goods remaining unsold is conducted and we ca;ll this physical
inventory count. The unsold goods are originally recorded at cost upon purchase. The
portion of the goods that are sold is called Cost of Sales or Cost of Goods Sold.
FLOW OF GOODS
Beginning Inventory
at 1,000
+
= 8,000
(8 units)
Purchases
At 1,000
= 6000
At 1,000
= 14,000
at 1,000
= 4,000
At 1,000
= 10,000
(6 units)
=
Available for Sale
(14 units)
-
Cost of Sales or Cost of Goods Sold
=
Ending Inventory
(4 units)
(10 units)
FINANCIAL ACCOUNTING: MADE EASY
37
To simplify the illustration:
Beginning Inventory
+ Purchases
= Available for Sale
-Cost of Sales
=Ending Inventory
Quantity
8
6
14
4
10
Cost
at 1,000
at 1,000
Amount
= 8,000
= 6,000
14,000
4,000
10,000
Based on the above illustration, the illustration, the ending inventory of merchandise is
computed as follows:
10 units at 1,000 = 10,000
The 10,000 ending inventory of let’s say Dec. 31, 20A will eventually become the
beginning inventory on January 1, 20B.
Let us assume further that during 20B, the business had made a total purchases of
80,000 and had incurred Freight-in of 2,500. It had also recorded Purchase Returns &
Allowances and Purchase Discounts of 4,000 and 3,000 respectively. At the end of 20B,
the cost of merchandise left on hand is 30,000.
COST OF SALES
Based on the given data, the Cost of Sales or Cost of Goods Sold is computed as
follows:
Cost of Goods Sold:
Merchandise inventory, Beg.
10,000
Purchases
80,000
Add: Freight-In
2,500
Gross Purchase
82,500
Less: Purchase Returns & Allowances
4,000
Purchase Discounts
3,000
7,000
75,500
Goods Available for Sale
85,500
Less: Merchandise Inventory, End
30,000
Cost of Sales or Cost of Goods Sold
55,500
NET SALES AND GROSS PROFIT
When there are Sales Returns & Allowances and Sales Discounts during the period,
these are being deducted from Sales. The difference is called Net Sale,s The Account
Slaes is sometimes temed as Gross Sales so that it can be differentiated from Net
Sales, If there are no Sales Returns & Allowances and Sales Discounts, the account
Sales is understood to mean Net Sales.
FINANCIAL ACCOUNTING: MADE EASY
38
To illustrate:
During the period of 20B, the business has generated Sales amounting to 100,000. The
Sales Returns & Allowances and Sales Discounts were 2,000 and 3,000, repectively.
Based on the given data, Net Sales is computed as follows:
Sales
Less: Sales Returns & Allowances
Sales Discounts
Net Sales
100,000
2,000
3,000
5,000
95,000
The excess of Sales or Net Sales over the Cost of Sales or Cost of Goods Sold is called
“Gross Profit”. Combining together the given amount of Net Sales and corresponding
Cost of Sales, equals Gross profit of 20B computed as follows:
Net Sales
Sales
Less: Sales Returns & Allowances
Sales Discounts
5,000
Net Sales
100,000
2,000
3,000
95,000
Cost of Goods Sold:
Merchandise inventory, Beg.
10,000
Purchases
80,000
Add: Freight-In
2,500
Gross Purchase
82,500
Less: Purchase Returns & Allowances
4,000
Purchase Discounts
3,000 7,000 75,500
Goods Available for Sale
85,500
Less: Merchandise Inventory, End
30,000
Cost of Sales or Cost of Goods Sold
Gross Profit
55,500
39,500
OPERATING EXPENSES
Under Merchandising concern, operating expenses are classified into two: DSeeling or
Distribution Expenses and General and Administrative Expenses. Selling expenses are
those incurred in storing, promoting, packaging and delivery of merchandise, suchj as
freight out, sales, salaries, advertising and sales commission while general and
Administrative expenses consist of expenses needed in the general administration pof
the office, such as office slaroes, uncollectible account expense, office supplies, rent
expense, taxes and licenses, utilities expense, insurance expense, etc.
PROFIT OR LOSS
FINANCIAL ACCOUNTING: MADE EASY
39
When total expenses are deducted from Gross Profit, the result will either be Profit or
Loss depending upon the following sitautions:
a) If the amount of expoenses incurred during the period is smaller than the Gross
Profit, the result is profit.
b) If the amount of expenses is bigger than the Gross Profit, the result is a Loss.
DETEHREMINATION OF POWNERSHIP OF MERCHANDISE
The determination of who ajs the ownership over the merchandise is important. Does the
ownership of merchandise remain to the seller or has already been transfereed to
buyer? It can be resolved through the following shipping terms:
a) F.O.B. Shipping Point – the ownership of merchandise is transferred from the
seller to the butyuer at the moment the merchandise is loaded to the vessel at
the shipping point or point of origin regardless of the invoice date of the seller.
b) F.O.B. Destination – the ownership of merchandise is transferred from the seller
tpo the buyer at the momnemntn the merchandise is unloaded from the vessel
upon reaching the destuination. F.O.B. stands for free on board.
To illustrate:
Cebu Plaaza Fair (seller0 shipped merchandise to Davao Metro Mall(buyer) and the
mercdi=se was loaded to the vessel, Super Ferry on December 28, 20A. The vessel
arrived at the port of Davao on December 31, 20A but the merchandise was unloaded
from the vessel on January 1, 20B.
Boith Cebu Plaza amd Davao Metr Mall used calendar accounting period which ends on
December 31, 20A.
Question: Who has the ownership of the merchandiseas of December 31, 20A?
Answers:
a) Under the Shipping term F.O.B. Shipping Point, the ownership of the
merchandise belongs to Davao Metro Mall. Thus, Purchases is reecorded by
Davao Metro Mall and Sales is recorded by Cebu Plaza Fair. Since the
merchandise is still in transit on December 31, 20A, it was not included by Davao
Metro Mall in its physical counting of merchandise to determine the Merchandise
Invenroty, End. It mjust be included or added to merchandise which have already
been counted.
b) Under the shipping term F.O.B. Destination, the ownership of merchandise is
retained by Cebu Plza Fair (seller) because it was unloaded from the vessel on
January 1, 20B already. Therefore, as of Decembe r31, 20A, the merchandise n
is still included in the inventory of Cebu Plaza Fair and will be recorded as
DSales in January 1, 20B. Davao Metro Mall will record this as Purchasses also
in January 20B.
WHO SHOULDERS THE FREIGHT?
The following terms will determine who should shoulder the freight.would it be the
seller or the buyer?
F.O.B. Shipping Point – it is the buyer who shoulders the freight.
FINANCIAL ACCOUNTING: MADE EASY
40
a) Freight Prepaid – usually the seller(shipper) pays in advance the freight in
behalf of the buyer. The respestive journal entries in the book of the seller
and the buyer follows:
Book of the Seller
1. Upon Payment of the freight:
Accounts Receivable – Buyer 100
Cash
100
Book of the Buyer
2. Upon receipt of goods:
Freight-in
100
100
Accounts Payable
3. Upon receipt of reimbursement by buyer
Cash
100
100
Accounts Receivable 100
4. Upon reimbursement to seller:
Accounts Payable – Seller
Cash 100
b) Freight Collect – usually the seller (shipper) instructs the carrier in charge that
payment of freight will be upon arriveal at buyer’s place.
Book of the Seller
Book of the Buyer
2. Upon arrival of carrier:
NO ENTRY
Freight-in
100
Cash
100
F.O.B. Destination – it is the seller who shoulders the freight.
a) Freight Prepaid – the seller pays its own freight on shipment.
Book of the Seller
Book of the Buyer
Freight Out
100
NO ENTRY
Cash
100
b) Freight Collect - usually the seller (shipper) instructs the carrier in charge that
payment of freight will be upon arrival at the buyer’s place.
Book of the Seller
Upon shipment of the goods
NO ENTRY
2.Upon receipt of buyers bill:
Freight Out
100
Accounts Payable
100
Accounts Payable
100
Cash
100
Book of the Buyer
1. Upon receipt of goods:
Accounts Receivable 100
Cash
100
Reimbursement of seller for freight
Advanced by buyer:
Cash
100
100
Accounts Receivable
MERVHANDISE INVENTORY VALUATION AND ESTIMATION
The most common methos of inventory vakluatio that the aqccountants usually apply is
to follow the cost flow assumptions from purchases to cost of goods sold
FINANCIAL ACCOUNTING: MADE EASY
41
The generally accepted methods are the first-in, first-out method and the weighted
average method.
Illustration:
The follwosing date was gathered from Product 357 on December 31, 20A:
Inventory, Beg.
1st Purchase
2nd Purchase
Goods Available for Sale
Invetroy, End
Cost of Goods Sold
Quantity
250
300
150
700
(240)
460
Unit Cost
25
26
27
Total Cost
6,250
7,800
4,050
18,100
First-in, First-out (FIFO)
FIFO assumes that the units sold come from the earlisest acquisition so that the
unsols=d units must have come from the latest acquisition. The unsold units of 240
should be computed in rthe following manner.
nd
From 2 Purchase
From 1st Purchase
Inventory, End
Quantity
150
90
240
Unit Cost
27
26
Total Cost
4,050
2,340
6,390
On December 31, 20A, the adjusting entry to set-up inventory at the end follows:
20A
Dec. 31
Merchandise Inventroy, End
6,390
Income & Expense Summary
6,390
To set up inventory at the end.
After the ending inventory has been determined, the cost of goods sold can be
computed as follows:
Goods Available for Sale
18,100
Less, Inventory, End
6,390
Cost of Goods Sold
11,710
Here are the details of the Cost of Goods Sold:
Quantity
Inventory, Beg.
250
1st Purchase (300-90)
210
Cost of Goods Sold
460
Unit Cost
25
26
Total Cost
6,250
5,460
11,710
It is important to emphasize that under the periodic system, the Cost of Goods Sold
cannot be computed without first computing the cost of ending inventory.
Weighted Average Method
FINANCIAL ACCOUNTING: MADE EASY
42
The weighted average method assumes that the units on hand and units sold must have
come from the beginning inventory, then combined with what has been purchased
during the period. If the wighted average cost flow is assumed, the 240 units onhand as
of the end of the period are valued at the average ubit cost of the period. The weighted
average is computed as follows:
Total Cost of Goods Available for Sale
per Unit
Number of Units Available for Sale
P 18,100
700 units
= Weighted Average Cost
= 25.857
Using the weighted average method, the cost assigned to the ending inventory of 240
units is computed as follows:
240 units x 25.857 = 6,206
On December 31, 20A, the adjusting entry to set-up inventory at the end follows:
20A
Dec. 31
Merchandise Inventroy, End
6,206
Income & Expense Summary
6,206
To set up inventory at the end.
The cost of goods sold is computed as follows:
Goods Available for Sale
18,100
Less, Inventory, End
6,206
Cost of Goods Sold
11,894
Gross Profit Rate Method
This method approximates the valuation of the ending inventory using the past year’s
gross profit rates which are assumed to be more or less the same. This method is also
helpful in estimating inventory value of merchandise lost through robbery, floods, fire and
other calamities. The gross profit rate is computed as follows:
Gross Profit Rate = Gross Profit
Net Sales
To illustrate:
At the end oi March 30, 20A, a grocey store was ransacked and robbed with many
grocery items of undetermined amount,. A physical inventory was conducted right after
the incident and found out to be on hand 1,425,000 cost of merchandise.
The record shows the following:
Beg. Inventory, Jan. 1, 20A
Purchases-Jan. 1 to March 29
Sales as of March 29
2,050,000
3,260,000
5,000,000
FINANCIAL ACCOUNTING: MADE EASY
43
Gross Profit Rate is 25%
1. Compute the estimated inventory as of March 29.
2. Determine the value of inventory lost due to robbery.
Solution:
Beg. Inventory, Jan. 1, 20A
Purchases- Jan. 1 to March 29
Goods Available for Sale
Cost of Goods Sold:
Sales as of March 29
Less: Gross Profit(25%)
Estimated Inventory, End
Less: Actual Inventory after robbery
Lost due to robbery
2,050,000
3,260,000
5,310,000
5,000,000
1,250,000
3,750,000
1,560,000
1,560,000
1,425,000
135,000
UNIT 3 MERCHANSE INVENTORY ADJUSTMENTS, WORKSHEET, FINANCIAL
STATEMENTS, CLOSING ENTRIES, POST-CLOSING TRIAL BALANCE AND
REVERSING ENTRIES
(4th, 5th, 6th, 7th, 8th and 9th Steps of the Accounting Process)
MERCHANDISE INVENTORY ADJUSTMENTS ( 4th Step of the Accounting Process)
There are two (2) methods of handling merchandise inventory adjustments andthese are
the adjusting entry method and the closing entry method or direct extension method.
Both methods however, will give us the same results. Actually, the adjustmenrts on
merchndie inventory is reflected in the book as a closing entry.
FINANCIAL ACCOUNTING: MADE EASY
44
Adjusting entry method can be best explained by presenting again the trial balance of
Metro Davao Distributors for the month ended July 31, 2020 where it shows a
Merchandise Inventory, Beg. (Feb.1) in the amount of 250,000 (highlighted).
Louien Distributors
Trial Balance
July 31, 2020
Page No.
Account Titles
1
2
4
5
6
8
10
12
13
15
16
17
18
19
20
Cash in Bank
1,011,180
Accounts Receivable
455,000
Merchandise Inventory
250,000
Supplies Inventory
15,000
Furniture & Equipment
1,500,000
Transportation Equipment
1,800,000
Accounts Payable
L. Dangase, Capital
L. Dangase, Drawing
20,000
Sales
Sales Discounts
5,220
Sales Returns & Allowances
4,500
Purchases
500,000
Purchase Discounts
Purchase
Returns
&
Allowances
Freight-In
2,500
Freight-Out
4,700
Salaries Expense
15,000
Utilities Expense
5,800
Taxes & Licenses
6,500
Rent Expense
10,000
Total
5,605,400
21
22
23
24
25
27
Debit
Credit
298,500
4,415,000
885,900
1,500
4,500
5,605,400
Let us assume that Louien Distributors’ Merchandise inventory, end (Jluly 31) which was
determined through physical counting of unsold goods was 190,000.
Adjusting entry method is accomplished by performing the following steps:
Step 1 – Close the merchandise inventory, beg. (July 1), 250,000 to Income and
Expense Summary account.
Journal Entry:
Income and Expense Summary
Merchandise Inventory, Beg.
250,000
250,000
The above entry is posted to the General Ledger as follows:
Merchandise Inventory
FINANCIAL ACCOUNTING: MADE EASY
July
1
Beg.
Bal.
250,00
0
45
250,00
0
Step 1
Income & Expense Summary
Step 1
250,00
0
Step 1 closes the merchandise inventory, beg. (July 1) amounting to 250,000.
Step 2 – Establish the merchdise inventory, end (july 31), 190,000.
Journal Entry:
Merchandise Inventory, End
190,000
Income and Expense Summary
190,000
The above journal entry is posted to the General Ledger as follows:
Merchandise Inventory
July 1
Beg.
250,00
Bal.
0
Step 2
190,00
0
250,00
0
Step 1
Income & Expense Summary
Step 1
250,000 190,00 Step
0
2
Step 2 establishes the 190,000 merchandise inventory at the end which is an
asset.
The Closing Entry Method is what we apply in this Module. The procedure I n filling-up
the worksheet from Step 1 to Step 6 is found on pages _______. The closing entry is
found on page ____ and is shown for better understanding as follows:
Merchandise Inventory, End (July 31)
190,000
Purchase Discount
1,500
Purchase Returns & Allowances
4,500
Income & Expense Summary
556,500
Merchandise Inventory, Beg. (July 1)
250,000
Purchases
500,000
Freight-in
2,500
To close the cost of sales account to Income
& Expense Summary and established the ending inventory.
FINANCIAL ACCOUNTING: MADE EASY
46
The balancing account and amount of Income & Expense Summary is our Cost of Sales
of 556,500. Please see the cost of sales section of the Income Statement on page ____
as being highlighted.
Going bgack to our illustrative problem Louien Distributors, we assumed that the
following are the given data for adjustments.
1) Merchadise Inventory on Febraury 28 conducted through physical count of
unsold goods, 190,000(direct extension method is applied in the worksheet and it
will be recorded in the closing entry).
2) It is estimated thay 1% of Accounts Receivable is doubtful of collection.
Accounts Receivable
455,000
X 1%
Provision for Uncollectible Accounts 4,550
‘
Adjusting Entry
Uncollectible Accounts
Estimated Uncollectible Accounts
4,550
4,550
3) Furniture and Equipment has an estimated life of 5 years without salvage value.
1,500,000
5 years
= 300,000/year
12 months
= 25,000
4) Service Vehicle has an estimated life of 5 years with a salvage value of 150,000
at the end of its life.
1,800,000-150,000
5 years
= 330,000/year
12 months
= 27,500
Adjusting Entry
Depreciation Expense
52,500
Acc. Dep’n-Furniture and Equipment
25,000
Acc. Dep’n- Transportation Equipment
27,500
5) Of the Supplies Inventory of 15,000, 10,000 have been used-up.
Adjusting Entry
Supplies Expense
Supplies Inventory
10,000
10,000
The adjusting entries are formally recorded in the Genneral Journal as shown below
except that merchandise inventory is directly extended to the worksheet.
General Journal
Date
Particulars
Folio
Debit
Credit
FINANCIAL ACCOUNTING: MADE EASY
47
July 31 Uncollectible Accounts
Estimated Uncollectible Accounts
To set-up provision for Uncollectible
Accounts.
Depreciation Expense
Acc. Dep’n-Furniture and Equipment
Acc. Dep’n-Transportation Equipment
To record depreciation.
Supplies Expense
Supplies Inventory
To record supplies used.
GJ – 4,550
28
GJ – 3
4,550
GJ – 52,500
29
GJ – 7
GJ – 9
25,000
27,500
GJ – 10,000
26
GJ – 5
10,000
Adjusting journal entries are also posted to the General Ledger. Only the accounts
affected in the adjusting entries are being shown.
3)
7)
Estimated Uncollectible Accounts
4,550
AJE
5)
BB
Supplies Inventory
7/1
15,000 10,000
Acc. Dep’n-Furniture & Equipment
25,000 7/28 AJE
9)
Equipment
Supplies Expense
7/28 10,000
29)
AJ
E
Depreciation Expense
7/28 52,500
28)
AJ
E
AJE
Acc. Dep’n-Transportation
27,500
26)
AJ
E
7/28
7/28
AJE
Uncollectible Accounts
7/28 4,550
WORKSHEET (5th Step of the Accounting Process)
A worksheet is a device used by an accoutnats to facilitate the preparation of adjusting
entries, financial statements, closing entries and the post-closing trial balance. The
preparation of a worksheet, however, is “optional”.
PROCEDURES IN FILLING-UP A 10-COLUMN WORKSHEET
Step 1 – First, indicate the heading and then copy the figures of the Trial Balance “as is”.
Instead of a trial balance, write “Unadjusted Trial Balance” to remind you that the trial
balance that you have to prepare before adjustment.
FINANCIAL ACCOUNTING: MADE EASY
48
Step 2 – Plot your adjusting entries in the adjusted column. The letter identifies the
sequencing of adjusting entries except for the merchandise inventory. The accounts that
are not found in the unadjusted trial balance but are affected in adjustments are listed
down below the adjustments column.
Step 3 – In the adjusted trial balance column, the unadjusted trial balance, and the
adjustment column figures are combined. If the amounts have the same column, they
are added. If the amounts have opposite column, say one is debit and the other is credit,
get their difference and follow the column of the amount which has a greater value.
Step 4 – The Merchandise Inventory, July 1 (Beginning) is extended to the debit column
of the Income statement which signifies an addition to cost of purchases while the
Merchandise Inventory, July 28(Ending) is extended to bith the credit column of the
Income Statement and debit column of the Balance Sheet without passing-through the
adjustment section, This is called the direct extension method. The extension of the
Merchandise Inventory, July 28 to the credit side of the Income Statement signifies the
reduction from the cost of goods sold while the extension of the debit column of the
Balance Sheet signifies a recognition of an Asset account (Merchandise Inventory)
representing the unsold merchandise which is on hand.
Step 5 – Extend to the Balance Sheet section of the Assets, Liabilities and
Owner’sEquity accounts and to Inome Statement section of the Income, Cost and
Expenses including those accounts that are listed underneath the total of the unadjusted
trial balance.
Step 6 – When you total the columns of the Income Statement and Balance Sheet
sections of your worksheet, you’ll findout the two will not balance and the amount of
difference between the Income Statement and Balance Sheet are the same. The
difference is either a Profit or Loss. It is a profit if the total credit of the Income Statement
is bigger than the total debit. Conversely, if the credit total of the Income Statement is
smaller than the debit, it is Loss. The Profit is extended to the Balance Sheet credit to
remind you that Profit will increase owner’s equity while Loss is extended to the Balance
Sheet debit which means reduction from capital balance.
Shown on page ___ and ___ is a 10-Column Worksheet of Louien Distributors,
presented in a “step by step” manner:
FINANCIAL ACCOUNTING: MADE EASY
10-Column Worksheet
STEP 1, 2 & 3
Unadjusted Trial
Adjustments
Balance
Dr.
Cr.
Dr.
Cr.
Account Titles
Cash in Bank
1,011,1
80
Accounts Receivable
455,00
0
Merchandise
Inventory, 250,00
Beg.
0
Supplies Inventory
15,000
c)
10,000
Furniture & Equipment
1,500,0
00
Transportation Equipment
1,800,0
00
Accounts Payable
298,50
0
L. Dangase, Capital
4,415,0
00
L. Dangase, Drawing
20,000
Sales
885,90
0
Sales Discounts
5,220
Sales Returns & Allowances 4,500
Purchases
500,00
0
Purchase Discounts
1,500
Purchase
Returns
&
4,500
Allowances
Freight-In
2,500
Freight-Out
4,700
Salaries Expense
15,000
49
Louien Distributors
Worksheet
For the month ended July 31, 2020
Adjusted
Balance
Dr.
Cr.
1,011,1
80
455,00
0
250,00
0
5,000
Trial
1,500,0
00
1,800,0
00
298,500
4,415,000
20,000
885,900
5,220
4,500
500,00
0
1,500
4,500
2,500
4,700
15,000
Income Statement
Balance Sheet
Dr.
Dr.
Cr.
Cr.
FINANCIAL ACCOUNTING: MADE EASY
Utilities Expense
Taxes and Licenses
Rent Expense
5,800
6,500
10,000
Total
5,605,4
00
Merchandise Inventory, End
Uncollectible Acocunts
5,800
6,500
10,000
______
___
5,605,4
00
a)
4,550
Estimated
Uncollectible
Accounts
Depreciation Expense
a)
4,550
a) 4,550
b)
52,500
Acc.
Dep’n-Furniture
&
Equipment
Acc. Dep’n-Transportation
Equipment
Supplies Expense
c)
10,000
67,050
Total
10-Column Worksheet
50
a) 4,550
b)
52,500
b)
25,
000
b)27,50
0
_______ c)
___
10,000
67,050
5,662,4
50
STEP 4, 5 & 6
Unadjusted Trial
Adjustments
Balance
Dr.
Cr.
Dr.
Cr.
Account Titles
Cash in Bank
1,011,1
80
Accounts Receivable
455,00
0
Merchandise
Inventory, 250,00
b) 25, 000
b)27,500
________
____
5,662,450
Louien Distributors
Worksheet
For the month ended July 31, 2020
Adjusted
Balance
Dr.
Cr.
1,011,1
80
455,00
0
250,00
Trial Income
Statement
Dr.
Cr.
250,00
Balance Sheet
Dr.
1,011,18
0
455,000
Cr.
FINANCIAL ACCOUNTING: MADE EASY
Beg.
Supplies Inventory
0
15,000
Furniture & Equipment
1,500,0
00
1,800,0
00
Transportation Equipment
Accounts Payable
c)
10,000
0
5,000
L. Dangase, Drawing
Sales
20,000
Sales Discounts
Sales Returns & Allowances
Purchases
5,220
4,500
500,00
0
Total
5,605,4
00
1,500,00
0
1,800,00
0
298,50
0
4,415,0
00
4,415,00
0
20,000
20,000
885,900
5,220
4,500
500,00
0
1,500
4,500
2,500
4,700
15,000
5,800
6,500
10,000
5,000
298,500
885,90
0
&
0
1,500,0
00
1,800,0
00
298,50
0
4,415,0
00
L. Dangase, Capital
Purchase Discounts
Purchase
Returns
Allowances
Freight-In
Freight-Out
Salaries Expense
Utilities Expense
Taxes and Licenses
Rent Expense
51
885,90
0
5,220
4,500
500,00
0
1,500
4,500
2,500
4,700
15,000
5,800
6,500
10,000
______
___
5,605,4
00
1,500
4,500
2,500
4,700
15,000
5,800
6,500
10,000
Merchandise Inventory, End
Uncollectible Acocunts
Estimated
Accounts
Uncollectible
190,00
0
a)
4,550
a)
4,550
a) 4,550
190,000
a)
4,550
a) 4,550
4,550
FINANCIAL ACCOUNTING: MADE EASY
Depreciation Expense
Acc.
Dep’n-Furniture
&
Equipment
Acc. Dep’n-Transportation
Equipment
Supplies Expense
Total
Profit
Total
52
b)
52,500
c)
10,000
67,050
b)
52,500
b)
25,
000
b)27,50
0
_______ c)
___
10,000
67,050
5,662,4
50
b)
52,500
b)
25,
000
b)27,500
_______
____
5,662,45
0
25,
000
27,500
10,000
871,27
0
210,63
0
1,081,9
00
______
___
1,081,9
00
______
___
1,081,9
00
_______
__
4,981,18
0
_______
___
4,981,18
0
______
_
4,770,5
50
210,63
0
4,981,1
80
FINANCIAL ACCOUNTING: MADE EASY
53
FINANCIAL STATEMENTS (6th Step of the Accounting Process)
INCOME STATEMENT – is a financial statement which shows the performance of the
enterprise for a given period of time.
Shown below is the Income Statement of Louien Distributors using the Multiple-Step
Form (Function of Expense Method)
Louien Distributors
Income Statement
For the month ended February 28, 2020
Net Sales
Gross Sales
Less: Sales Discounts
Sales Returns & Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, beg.
Add: Purchases
Freight-in
Gross Purchases
Less: Purchase Discounts
1,500
Purchase
Returns
& 4,500
Allowances
Cost of Goods Available for Sale
Less: Merchandise Inventory, End
Cost of Goods Sold
Gross Profit
Operating Expenses
Selling Expenses
Freight-out
Supplies Expense
General and Administrative
Salaries Expense
Utilities Expense
Depreciation Expense
Taxes and Licenses
Uncollectible Account Expense
Rent Expense
Profit
885,900
5,220
4,500
9,720
876,180
250,000
500,000
2,500
502,500
6,000
496,500
746,500
190,000
556,900
319,680
4,700
10,000
14,700
15,000
5,800
52,500
6,500
4,550
10,000
94,350
109,050
210,630
The difference between nature of expense and function of expense method is that, the
forer provides no allocation of expenses, such as advertising expenses, depreciation
expense, salaries and wages and other operating expenses while the latter classifies
expenses according to their functions as part of Cost of Sales, Selling and Administrative
and other Operating Expenses.
FINANCIAL ACCOUNTING: MADE EASY
54
The Accounting Standards Council made noi mention as to what prescribed format is
acceptable. The choice between the two methods should be based on that which most
fairly presents the elements of the enterprise’s performance. Undre merchandising
concern, however, it follows the multiple-step form whereby various steps are applied
and undergone before it arrives the final profit.
BALANCE SHEET – is a statement showing the financial position or condition of an
enterprise as of particular date.
Shown below is the Balance Sheet of Louien Distributors as of February 28,2020
following the Account Form.
Louien Distributors
Balance Sheet
As of February 28, 2020
LIABILITIES
EQUITY
ASSETS
Current Assets:
Cash in Bank
Acc.
Eqpt.
Dep’n-Furniture
1,011,18
0,
455,000
4,550
Accounts Payable
298,500
450,450
190,000
5,000
1,656,63
0
OWNER’S EQUITY
1,500,00
0
& 25,000
Transportation Equipment
Acc.Dep’n-Transportation
Eqpt.
Total
Property
&
Equipment
Total Assets
OWNER’S
LIABILITY
Current Liability:
Accounts Receivable
Est. Uncollectible Accounts
Merchandise Inventory, End
Supplies Inventory
Total Current Assets
Non-Current Assets:
Property and Equipment
Furniture and Equipment
&
1,800,00
0
27,500
1,475,00
0
L.Dangase, Capital
4,605,63
0
1,772,50
0
3,247,50
0
4,904,13
0
Total Liabilities and
Owner’s Equity
4,904,13
0
Shown below is the Balance Sheet of Louien Distributors as of February 28,2020
following the Report Form.
FINANCIAL ACCOUNTING: MADE EASY
55
Louien Distributors
Balance Sheet
As of February 28, 2020
ASSETS
Current Assets:
Cash in Bank
Accounts Receivable
Est. Uncollectible Accounts
Merchandise Inventory, End
Supplies Inventory
Total Current Assets
1,011,180,
455,000
4,550
Non-Current Assets:
Property and Equipment
Furniture and Equipment
Acc. Dep’n-Furniture & Eqpt.
Transportation Equipment
Acc.Dep’n-Transportation
Eqpt.
Total
Property
Equipment
450,450
190,000
5,000
1,656,630
1,500,000
25,000
1,475,000
1,800,000
27,500
1,772,500
&
Total Assets
3,247,500
4,904,130
LIABILITIES & OWNER’S EQUITY
Liability
Current Liability:
Accounts Payable
298,500
Owner’s Equity
L. Dangase, Capital
Total Liabilities and Owner’s Equity
4,605,630
4,904,130
STATEMENT OF CHANGES IN OWNER’S EQUITY – is a financial statement that
summarizes the change that occurred in Owner’s Equity. Shown below is the Statement
of Changes in Owner’s Equity of Louien Distributors for the month ended February
28,2020.
FINANCIAL ACCOUNTING: MADE EASY
56
Louien Distributors
Statement of Changes in Owner’s Equity
For the month ended February 28, 2020
L. Dangase, Capital – Beginning
4,415,000
Add: Profit
__210,630
Total
4,625,630
Less: L. Dangase, Drawing
__20,000
L. Dangase, Capital - End
4,605,630
STATEMENT OF CASH FLOWS – is a financial statement that provides information
about cash inflows and cash outflows for an entity for a given period of time. This shows
the Net Increase or decrease in cash during the period and the cash balance at the end
of the period.
As a guide in preparing statement of cash flow, make a General Ledger por T-Account of
Cash in Bank account and label the debit and credit as to Operating, Investing and
Financing Activities.
Cash in Bank
Investment by owner
Purchase Returns
Cash Sales
Collection from Customer
Cash Sales
2/1
2/3
2/5
2/18
2/20
Collection from customer
2/23 78,400
Cash
Balance,
850,000
3,000
116,400
177,380
49,500
150,000
2,500
3,500
1,200
48,500
2/2
2/2
2/5
2/8
2/12
500
37,300
2/22
2/28
20,000
1,274,680 263,500
1,011,180
2/28
Cash Purchase
Freight-in
Freight-out
Freight-out
Payment
of
Account
Sales Returns
Payment
of
Expense
Drawing by owner
End
Shown on the next page is the Statement of Cash Flows of Louien Distributors for the
month ended February 28,2020.
Louien Distributors
Statement of Cash Flows
For the month ended February 28, 2020
Cash Flows from Operating Activities:
Cash Sales of Merchandise
Collection from Customers
Purchase Returns & Allowances
Cash Purchase
Payment of Account
Freight-in
Freight-out
165,900
255,780
3,000
(150,000)
(48,500)
(2,500)
(4,700)
FINANCIAL ACCOUNTING: MADE EASY
Sales Returns & Allowances
Payment of Salaries
Payment of Utilities
Payment of Taxes and Licenses
Payment of Rent
Net Cash Provided by(Used in) Operating Activities
57
(500)
(15,000)
(5,800)
(6,500)
(10,000)
181,180
Cash Flows from Investing Activities:
Net Cash Provided by(Used in) Investing Activities
Cash Flows from Financing Activities:
Investment by the owner
Withdrawal by the owner
Net Cash Provided by(Used in) Financing Activities
Net Increase (Decrease) in Cash
Cash Balance at the beginning of the period
Cash Balance at the end of the period
850,000
(20,000)
830,000
1,011,180
_____
1,011,180
CLOSING ENTRIES
(7th Step of the Accounting Process)
The preparation of Closing entries is the seventh step of the accounting process. Like
adjusting entries, closing entries are usually prepared at the end og the accpounting
period of one year. In large scale business firms however, both are prepared at the end
of the closing entries at the end of the year. OIn this regard, the same procedures are
applied.
While the necessity of determining the financial condition and the result of business
operation in a shortest time possible is pobvious, financial statements ca still be derived
without the formal closing of books. Closing the books at the end of the period is only a
compliance with the accounting requirements.
As a reminder, only nominal accounts are closed while the real accounts
because these are being carried forward to the next accounting period. Again,
the Worksheety, closing entries can easily be prepared by looking at the
Statement Section. For purposes of discussion, the closing entries of
Distributorsis prepared and presented below comprising the following steps:
are not
through
Income
Louien
Step 1 – Close the Sales and its related accounts to Income and Expense Summary
Account.
Journal Entry
2020
Feb. 28
Effect:
Sales
885,900
Sales Discounts
5,220
Sales Returns & Allowances
4,500
Income & Expense Summary
876,180
TO close sales and its related accounts.
FINANCIAL ACCOUNTING: MADE EASY
58
While Sales, Sales Discounts and Sales Returns & Allowances are already in “Zero”
balance, Income & Expense Summary Accoutn is open with a credit entry of 876,180.
The General Ledger blances before and after the closing of sales and its related
accounts ti Income & Expense Summary follows:
15) Sales
Step 1
116,400
185,000
80,000
49,500
420,000
885,900 35,000
885,900 885,900
CLOSED
2/5
2/8
2/13
2/20
2/26
2/28
17) Sales Returns & Allowances
2/10
4,000
2/22
500
4,500
Step
1
4,500
4,500
CLOSED
16) Sales Discounts
2/18
3,620
2/23
1,600
5,220
Step
1
5,220
5,220
CLOSED
14) Income & Expense Summary
876,180 Step
1
Step 2 – Establish the Merchandise Inventory at the End and close the Merchandise
Inventory at the beginning together with other cost of sales and other related accounts.
Journal Entry
2020
Feb. 28
Effect:
Merchandise Inventory, End
190,000
Purchase Discounts
1,500
Purchase Returns a& Allowances
4,500
Income & Expense Summary
556,500
Merchandise Inventory, Beg.
250,000
Purchases
500,000
Freight-in
2,500
To close cost of sales and establish the
Merchandise Inventory at the end.
FINANCIAL ACCOUNTING: MADE EASY
59
The Purchases, Purchase Discounts, Purchase returns & Allowances and Freight-in
accounts are already I “zero” balance. The Merchandise Inventory, End is open with a
debit balance of 190,000 while the Income & Expense Summary accounts is open with a
debit and credit entries of 556,500 and 876,180 respectively.
The General Ledger balances before and after the closing of the cost of sales and the
related accounts follow:
Merchandise Inventory
2/1
250,000
Step 2 190,000 250,000 Step
2
190,000
Purchase Returns & Allowances
Step 2 4,500
3,000
2/3
1,500
2/10
4,500
4,500
CLOSED
Purchase Discounts
Step 2 1,500
1,500
CLOSED
2/2
2/7
2/9
2/15
2/12
150,000
50,000
230,000
70,000
500,000 Step
2
500,000 500,000
CLOSED
Purchases
Freight-in
2/2
2,500
CLOSED
2,500
Step
2
Income & Expense Summary
876,180 Step
1
Step 2 556,500
Step 3 – Close the expense accounts to Income & Expense Summary account.
Journal Entry
2020
Feb. 28
Income and Expense Summary
109,050
Freight-out
4,700
Supplies Expense
10,000
Salaries Expense
15,000
Utilities Expense
5,800
Depreciation Expense
52,500
Taxes and Licenses
6,500
Uncollectible Accounts
4,550
Rent Expense
10,000
To close expense accounts to Income
FINANCIAL ACCOUNTING: MADE EASY
60
& Expense Summary Account.
Effect:
All expense accounts are already in “zero” balance.
The General Ledger balances before and after the closing of all Income & Expense
Summary follow:
Income & Expense Summary
Step 2 556,500 876,180 Step
1
Step 3 109,050
210,630
Freight-out
2/5
3,500
2/8
1,200
Salaries Expense
2/28
15,000 15,000
Utilities Expense
2/28
5,800
Step
3
5,800
Step
3
10,000
Step
3
CLOSED
Step
3
Rent Expense
2/28
10,000
CLOSED
CLOSED
Uncollectible Account Expense
AJE
4,550
4,550
Step
3
CLOSED
Supplies Expense
AJE
10,000 10,000
Step
3
4,700
4,700
CLOSED
CLOSED
Taxes and Licenses
2/28
6,500
6,500
4,700
Depreciation Expense
AJE
52,500 52,500
Step
3
CLOSED
Step
3
CLOSED
The Income & Expense Summary showed a debit total of 665,550 (556,500+109,050)
and credit total of 876,180. The aount of difference represents profit of 210,630 because
Income side is bigger that the Expense side.
Step 4 – Profit of 210,630 is closed to capital account.
Journal Entry
2020
Feb. 28
Income & Expense Summary
210,630
FINANCIAL ACCOUNTING: MADE EASY
61
L. Dangase, Capital
To close profit to capital.
210,630
The General Ledger before and after closing profit to capital.
Income & Expense Summary
Step 2 556,500 876,180
Step 1
109,050
3
210,630
4
876,180 876,180
L. Dangase, Capital
4,415,000 Beg.Bal.
210,630
Step 4
4,625,630
Step 5 – Drawing of 20,000 is also closed to Capital Account.
Journal Entry
L. Dangase, Capital
20,000
L. Dangase, Drawing
20,000
To close drawing to capital account.
At this point, drawing account is closed while Capital Accpount will show a balance of
4,605,630 as shown below:
L. Dangase, Drawing
2/28
20,000 20,000
Step
5
CLOSED
L. Dangase, Capital
4,415,000 Beg.Bal.
210,630
Step 20,000
5
4,605,630
The capital balance of L. Dangase is 4,605,630 which is the same in amount that appear
in the Owner’s Equity section of the Balance Sheet on page ___ and capital balance in
the Statement of Owner’s Equity on page ___ of this module.
The closing entry is formally recorded in the General Journal as shown on the next page:
General Journal
Date
Particulars
Feb. 28 Sales
Sales Discounts
Sales Returns & Allowances
Income & Expense Summary
To close sales and other related account
to
Income & Expense Summary.
Folio
GJ
15
GJ
16
GJ
17
GJ
14
Debit
Credit
– 885,900
–
5,220
–
4,500
–
876,180
FINANCIAL ACCOUNTING: MADE EASY
Merchandise Inventory, Feb. 28
Purchase Discounts
Purchase Returns & Allowances
Income & Expense Summary
Merchandise Inventory, Feb. 1
Purchases
Freight-in
62
GJ – 4
GJ –
19
GJ –
20
GJ –
14
GJ – 4
GJ –
18
GJ –
21
190,000
1,500
4,500
556,500
250,000
500,000
2,500
To close cost of sales and related
account to
Income & Expense Summary.
Income & Expense Summary
Freight-out
Supplies Expense
Salaries Expense
Utilities Expense
Depreciation Expense
Taxes and Licenses
Uncollectible Accounts
Rent Expense
GJ
14
GJ
21
GJ
26
GJ
23
GJ
24
GJ
29
GJ
25
GJ
28
GJ
27
– 109,050
GJ
14
GJ
12
– 210,630
GJ
12
GJ
13
– 20,000
–
4,700
–
10,000
–
15,000
–
5,800
–
52,500
–
6,500
–
4,550
–
10,000
To close expense accounts to Income
&
Expense Summary account.
Income & Expense Summary
L. Dangase, Capital
–
210,630
To close profit to capital.
L. Dangase, Capital
L. Dangase, Drawing
To close Drawing to Capital.
–
20,000
FINANCIAL ACCOUNTING: MADE EASY
63
POST-CLOSING TRIAL BALANCE
(8th Step of the Accounting Process)
In compliance with the accounting requirement, the General Ledger of all nominal
accounts are closed. Then, the Post-closing Trial Balance is prepared to test or check
the equality of the debit and credit acountd after closding the nominal accounts, Shown
in the post closing trail balance are the same accounta that pappeared in the Balance
Sheet. Thus, a Post-Closing Triall Balnce ois often referred to as a “Balance Sheet in a
trail balance form.” These accounts will comprise the Opening Entry on March 1, 2020.
Shown below are the General Ledgers for each of the real or Balance Sheet accounts
with open balances which will comprise the post-closinf trial balance on February 28,
2020and opening of entry as of March 1, 2020.
ASSETS
1)
Cash in Bank
2/1
850,000
2/3
3,000
2/3
116,400
2/18
177,380
2/20
49,500
2/28
78,400
150,000
2,500
3,500
1,200
48,500
500
37,300
20,000
1,274,680 263,500
1,011,180
3)
5)
Est. Uncollectible Account
4,550
Supplies Inventory
2/1
15,000
10,000
5,000
2/2
2/2
2/5
2/8
2/12
2/22
2/28
2/28
Accounts Receivable
2/8
185,000 4,000
2/10
2/13
80,000
181,000 2/18
2/26
420,000 80,000
2/23
2/28
35,000
720,000 265,000
455,000
4)
Merchandise Inventory
2/1
250,000 250,000 Closing
CE
190,000
Entry
190,000
6)
Furniture & Equipment
2/1
1,500,000
8)
Transportation Equipment
2/1
1,800,000
AJE
AJE
7)
Acc. Dep’n-Furniture & Equipment
25,000 AJE
9)
Acc.
Equipment
Dep’n-Transportation
27,500
LIABILITY
2)
AJE
10) Accounts Payable
2/12
50,000
50,000
2/7
FINANCIAL ACCOUNTING: MADE EASY
2/18
1,500
51,500
230,000 2/9
70,000
2/15
350,000
298,000
64
OWNER’S EQUITY
12) L. Dangase, Capital
4,415,000 2/7
2/28
20,000
210,630
2/9
4,605,630
Out of these real or Balance Sheet account balnaces, a post-closing trial balance can be
prepared as follows:
Louien Distributors
Post-closing Trial Balance
February 28, 2020
Debit
Credit
Cash in Bank
1,011,180
Accounts Receivable
455,000
Estimated Uncollectible Accounts
4,550
Merchandise Inventory, Feb. 28
190,000
Supplies Inventory
5,000
Furniture and Equipment
1,500,000
Accumulated Depreciation-Furniture and Equipment
25,000
Transportation Equipment
1,800,000
Accumulated Depreciation-Transportation Equipment
27,500
Accounts Payable
298,500
L. Dangase, Capital
________
4,605,630
Total
4,961,180
4,961,180
The opening journal entry to be prepared on March 1, 2020 as follows:
Journal Entry
2020
March 1
Cash in Bank
1,011,180
Accounts Receivable
455,000
Merchandise Inventory
190,000
Supplies Inventory
5,000
Furniture and Equipment
1,500,000
Transportation Equipment
1,800,000
Estimated Uncollectible Account
4,550
Acc. Dep’n-Furniture & Eqpt.
25,000
Acc. Dep’n-Transportation Eqpt.
27,500
L. Dangase, Capital
4,961,180
To record opening entry on March 1, 2020.
REVERSING ENTRIES – refer explanation in reversing entries in service concer
FINANCIAL ACCOUNTING: MADE EASY
65
(9th Step of the Accounting Process)
In our illustrative problem, Louien Distributors, there are no adjusting entries that require
reversing entries.
THE SPECIAL JOURNALS
INTRODUCTION TO SPECIAL JOURNALS
There are two kinds of Journal. These are the General Journal and Special Journals
which are called books of original entry.
In our previous discussion of recording transactions, the use of a General Journal as a
book of original entry has been overemphasized. When transactions become numerous,
we can have a picture of how difficult it would be to post these journal entries in the
General Ledger. For example, if there are forty transactions involving cash collections or
receiopts and sixty transactions involving cash payments, there will be one hundred
journal entries recorded in the General Journal, forty debit entries and sixty credit entries
posted in the General Ledger of Cash account not to mention the one hundred postings
to the other accounts affected in the transactions. With this procedure , the General
Ledger becomes voluminous and unwieldy, the division of labor oin the bookkeeping
works could not be made possible, more costs incurred in terms of stationeries and
supplies and too much time and efforts arewasted in posting. This will in effect cause the
delay in the preparation of financial statements.
FINANCIAL ACCOUNTING: MADE EASY
66
Due to the above cited-easons, the journal is sub-divided into specialized books of
original entries. They are as follows:
1) Sales Book or Sales Journal
2) Purchase book or Purchase Journal
3) Cash Receipts Book or Cash Receipts Journal
4) Cash Disbursements Book or Cash Payments Journal
Each book or journals is a book of original entry but is used in recording only one kind of
business transactions. Thus, they are called Special Journals. A columnar book is used
for this purpose.
USES OF SPECIAL JOURNALS
Each special journal has specific use in recording transactions as discussed below:
Sales Journal – only transactions involving sale of merchandise on account or on credit
terms are recorded in this book. The pro-forma journal entry is:
Accounts Receivable
Sales
Output Tax
xx
xx
xx
Purchase Journal –only transactions involving purchase of merchandise on account or
on credit terms are recorded in this book. The pro-forma journal entry is:
Purchases
xx
Input Tax
xx
Accounts Payable
xx
Cash Receipts Journal – only tansactions involving receipts of cash ae ecorded in the
book such as, sale of merchandise in cash, collection fom customer’s account,
investment of the owner in terms of cash, cash received from a abnk loan, refund from
supplier for return of merchandise purchased in cash, etc. The pro-forma journal entry is:
Cash
xx
Various credits (as mentioned above)
xx
Cash received from Sale of merchandise
(Pro-forma Journal Entry)
Cash
xx
Sales
Output Tax
xx
xx
Cash received from refund for merchandise return to supplier
(Pro-forma Journal Entry)
Cash
xx
FINANCIAL ACCOUNTING: MADE EASY
67
Purchase Returns & Allowances
Input Tax
xx
xx
Cash received as collections with a discount
(Pro-forma Journal Entry)
Cash
xx
Sales Discount
xx
Output Tax
xx
Accounts Receivable
xx
Cash Disbursements Journal – only transactions involving cash payments are recorded
in this book such as, purchase of merchandise in cash, payment of suppliers’ account,
owner’s withdrawal in cash, cash refund to customers whose merchandise purchased in
cash was returned, cash payment of fixed assets, payment of expenses, etc. The proforma journal entry is:
Various debits (as mentioned above) xx
Cash
xx
Purchase of merchandise in cash
(Pro-forma Journal Entry)
Purchases
Input Tax
Cash
xx
xx
xx
Payment of merchandise on account with a discount
(Pro-forma Journal Entry)
Accounts Payable
Purchase Discounts
Input Tax
Cash
xx
xx
xx
xx
Refund to a customer for merchandise returned
(Pro-forma Journal Entry)
Sales Returns and Allowances
Output Tax
xx
Cash
xx
xx
General Journal – Even Special Journals are used, a General Journal will still be used
but it is limited to recording of transactions which cannot be recorded in the abovementioned books:
FINANCIAL ACCOUNTING: MADE EASY
1)
2)
3)
4)
5)
68
Investments of the owner not involving cash
Return of merchandise bought on account
Return of merchandise by a customer that were sold on account
Adjusting and correcting journal entries
Closing and Reversing Entries
The rules of debit and credit are being observed in the recording of transactions on
these special journals.
ILLUSTRATIVE PROBLEM: CENTREPOINT COMMERCIAL
The recording in the Special Journals and General Journal depend upin the spource
documents that support the transactions.
SOURCE DOCUMENTS
The common documents that are used by a merchandising business are:
a) Sales Invoice – When business buys goods from its supplier, the supplie will
issue a Sales Invoices. This document will then be used by the business as a
supporting document to record Purchases. Conversely, the same document will
aslo be used by the supplier to record its Sales. Remember, a business is a
buyer and a seller at the same time. If goods are sold in cash, a Sales Invoice is
used and Charge Sales Invoifce whn account or on credit term.
b) Official Receipt – This document is normally prepared and isseued by the
business to the customer when the latter pays his account. In other words, an
Official Receipt is a confirmation made by the business that payement of the
customer has been received and on the part of the customer, an acknowledge of
its payment mad to the business.
c) Delivery Receipt – this is a document that usually accompanies with the Slaes
incovoce as a proof that the goods have been delivered abnd acknowledged by
the customer.
d) Purchase Order – This is a document that the business used in ordering goods.
e) Receiving Report – This document is used by the business for internal control
purpose. The goods are physically checked against what has been indicated in
the sales invoice and delivery receipt issued by the supplier. This can be used
oin lieu of a Purchase Invoice.
f) Cash/Check Voucher – This document is used to accompany “cas” or “check” in
payment of account or disbursement of whatever nature.
CENTERPOINT COMMERCIAL owned and managed by Jay Saberon has started its
operation last year (2019). Its Chart of Account is shown below:
Page
No.
ASSETS
Page No.
INCOME
1
2
Cash in Bank
Petty Cash Fund
19
20
Sales
Sales Discounts
FINANCIAL ACCOUNTING: MADE EASY
3
4
5
6
7
8
9
10
Accounts Receivable
Estimated
Uncollectible
Accounts
Merchandise Inventory
Supplies Inventory
Prepaid Rent
Input Tax
69
21
22
23
24
11
12
Furniture & Fixtures
25
Acc. Dep’n - Furniture &
Fixtures
Store Equipment
Acc. Dep’n – Store Equipment
26
13
14
15
LIABILITIES
Accounts Payable
Output Tax
VAT Payable
16
17
18
OWNER’S EQUITY
J. Saberon, Capital
J. Saberon, Drawing
Income & Expense Summary
27
28
29
30
31
32
33
Sales Returns & Allowances
COST
Purchases
Purchase Discounts
Purchase
Returns
Allowances
Freight-in
&
EXPENSES
Uncollectible
Accounts
Expense
Depreciation Expense
Salaries & Wages
Taxes & Licenses
Freight-out
Utilities Expense
Supplies Used
Rent Expense
The accountatnt, Mrs. Calra Aurelio has already closed the 2019 Books of Accounts and
prepared to open its new set of books for this year’s accounting period of 2020. Rhe
post-closing trial balance that is needed for the opening entry on January 1, 2020 is
shown on the next page.
Centerpoint Commercial
Post-closing Trial Balance
December 31, 2019
Account Titles
Cash in Bank
Petty Cash Fund
Accounts Receivable
Estimated Uncollectible Accounts
Merchandise Inventory
Supplies Inventory
Prepaid Rent
Furniture and Fixtures
Accumulated Depreciation-Furniture and Fixtures
Store Equipment
Accumulated Depreciation-Store Equipment
Accounts Payable
Debit
585,000
1,000
90,000
Credit
4,000
180,000
11,000
20,000
230,000
45,000
160,000
16,000
281,000
FINANCIAL ACCOUNTING: MADE EASY
70
VAT Payable
L. Dangase, Capital
Total
33,600
897,400
1,277,000
________
1,277,000
(These are posted to their respective General Ledger as an opening entry for the
new accounting period, marked Beginning Balance, January 1, 2020.)
The following Schedules of Accounts Receivable and Accounts Payable were prepared
as of December 31, 2019.
Schedule of Accounts Receivable
Schedule of Accounts Payable
Butuan Commercial
Cagayan Supermarket
Dipolog Complex
Total
Cebu Plaza Fair
Robisons Plaza
Total
30,000
40,000
20,000
90,000
94,000
187,000
281,000
(These are to be posted to their respective Subsidiary Ledgers)
No adjusting entries that were prepared on December 31, 2019 that require Reversing
Entries on January 1, 2020.
NARRATIVE TRANSACTIONS DURING THE MONTH OF JANUARY 2020
Jan. 4 – Issued Check No. 534361 to the City Government in payment of business
permits and licenses, 14,850. This is covered by Check Voucher No. 01.
(This is recorded in the Cash Payments Journal)
JOURNAL ENTRY
Taxes and Licenses 14,850
Cash in Bank
14,850
Jan. 6 – Bought merchandise on account from the following suppliers:
Suppliers
Charge
Invoice
No.
3610
Robinson
Plaza
Cebu
Plaza 1923
Fair
Cost
VAT
Total
Term
120,000
14,400
134,400
18,000
2,160
20,160
10%,
days
30 days
138,000
16,560
154,560
15
FINANCIAL ACCOUNTING: MADE EASY
71
(This is recorded in the Purchase Journal and to be posted to their
respective Subsidiary Ledgers)
JOURNAL ENTRY
Purchases
138,000
Input Tax
16,560
Accounts Payable
154,560
Jan. 8 – Sold merchandise on account from the following customers:
Customers
Dipolog Complex
Cagayan
Supermarket
Butuan Commercial
Charg
e
Invoic
e No.
0942
Cost
VAT
Total
Term
80,000
9,600
89,600
0943
35,000
4,200
39,200
10%,
days
30 days
0944
40,000
155,000
4,800
18,600
44,800
173,600
15
30 days
(This is recorded in the Sales Journal and to be posted to their
respective Subsidiary Ledgers)
JOURNAL ENTRY
Accounts Receivable 173,600
Sales
155,000
Output Tax
18,600
Jan. 9 – Issued Check No. 534362 to Philtranco Bus Co. in payment of freight and
handling as per bill of lading in the amount of 3,450. This is covered by Check No. 02.
Freight on shipment to customers
Freight on shipment from suppliers
Total
2,450
1,000
3,450
(This is recorded in the Cash Payments Journal)
JOURNAL ENTRY
Freight-out
2,450
Freight-in
1,000
Cash in Bank
3,450
Jan. 11 – Issued a Credit Memo No. 5 to Butuan Commercial for returning the goods
bought from us on account on Jan. 8. No replacements.
FINANCIAL ACCOUNTING: MADE EASY
Cost
3,000
72
VAT
360
Total
3,360
(This is recorded in the General Journal and to be posted to the
Subsidiary Ledgers)
JOURNAL ENTRY
Sales Returns & Allowances 3,000
Output Tax
360
Accounts Receivable – Butuan Commercial
3,360
Jan. 14 – Issued Debit Memo No. 3 to Cebu Plaza Fair for merchansdise we bougth on
account Jan. 6 and returned by us today.
Amount
1,000
VAT
120
Total
1,120
(This is recorded in the General Journal and to be posted to the
Subsidiary Ledgers)
JOURNAL ENTRY
Accounts Payable – Cebu Plaza Fair 1,120
Purchase Returns & Allowances
1,000
Input Tax
120
Jan. 16 – Sold merchandise in cash to the following customers:
Customers
Koronadal Mart
Dadiangas
Commercial
Charge
Sales
Invoice No.
0757
0758
Amount
VAT
Total
90,000
25,000
10,800
3,000
100,800
28,000
115,000
13,800
128,800
(This is recorded in the Cash Receipts Journal)
JOURNAL ENTRY
Cash in Bank 128,800
Sales
Output Tax
115,000
13,800
FINANCIAL ACCOUNTING: MADE EASY
73
Jan. 17 – Issued Check No. 534363 and 534364 in the amount of 100,800 and 44,800
respectively for merchandise purchased in cash.These are covered by Check Voucher
Nos. 03 and 04.
Suppliers
Ozamis Superstore
Iligan Merchndising
Total
Cash
Invoice No.
5014
9632
Amount
VAT
Total
90,000
40,000
130,000
10,800
4,800
15,600
100,800
44,800
145,600
(This is recorded in the Cash Payments Journal)
JOURNAL ENTRY
Purchases
130,000
Input Tax
15,600
Cash in Bank
145,600
Jan. 19 – Received Cash refund amounting to 2,200 from Ozamis Superstore for
shipping merchandise not conforming with the order. Issued Official Receipt No. 092
acknowledging the fund.
Cost
2,000
VAT
240
Total
2,240
(This is recorded in the Cash Receipts Journal)
JOURNAL ENTRY
Cash in Bank 2,240
Purchase Returns & Allowances
Input Tax
2,000
240
Jan. 20 – Issued Check No. 534365 to Jay Saberon representing his drawing, 10,000.
This is covered by Check Voucher No. 05.
(This is recorded in the Cash Receipts Journal)
JOURNAL ENTRY
J. Saberon, Drawing 10,000
Cash in Bank
10,000
FINANCIAL ACCOUNTING: MADE EASY
74
Jan. 20 – Issued Check No. 534366 to Robinson Plaza (Supplier) in payment of our jan.
6 account, less 10% discount availed. 120,960. This is covered by Check Voucher No.
06.
Total Bill
Discount
VAT
134,400
12,000
1,440
Net
Cash
Paid
120,960
(This is recorded in the Cash Payments Journal and to be posted to the
Subsidiary Ledgers)
JOURNAL ENTRY
Accounts payable – Robinson Plaza 134,000
Purchase Discounts
12,000
Input Tax
1,440
Cash in Bank
120,960
Jan. 21 – Issued Official Receipt No. 093 to Dipolog Complex (customer) in the amount
of 89,600 representing collection from their account, less 5% discount.
Total Bill
Discount
VAT
89,600
4,000
480
Net
Cash
Paid
85,120
(This is recorded in the Cash Receipts Journal and to be posted to the
Subsidiary Ledgers)
JOURNAL ENTRY
Cash in Bank
85,120
Sales Discounts
4,000
Output Tax
480
Accounts Receivable – Dipolog Complex
89,600
Jan. 24 – Issued Check No. 534367 to Bureau of Internal Revenue in the amount of
33,600 for the remittance pof the Value-Added Tax, for the last calendar quarter ended
December 31, 2019. This is covered by Check Voucher No. 07.
(This is recorded in the Cash Payments Journal)
JOURNAL ENTRY
VAT Payable 33,600
Cash in Bank
33,600
FINANCIAL ACCOUNTING: MADE EASY
75
Jan. 27 – Issued Check No. 534368 to Mr. Condrado Baugbog in the amount of 4,800
for payment of the followingexpenses (Utilities Expense). This is covered by Check
Voucher No. 08.
Light Bills
Water Bills
Telephone Bills
Total
1,400
1,300
2,100
4,800
(This is recorded in the Cash Payments Journal)
JOURNAL ENTRY
Utilities Expense
4,800
Cash in Bank
4,800
Jan. 30 – Issued Check No. 534369 (pay to cash) in the amount of 32,000 for payment
of Salaries and Wages. This is covered by Check Voucher No. 09.
(This is recorded in the Cash Payments Journal)
JOURNAL ENTRY
Salaries and Wages 32,000
Cash in Bank
32,000
Jan. 31 – Close the VAT Input and VAT Outputs to VAT Payable in order to set-up the
amount to be remitted to the Bureau of Internal Revenue.
(This is recorded in the Cash Payments Journal)
Balances
VAT Output 31,500
VAT Input
VAT Payable
30,360
1,200
(This is recorded in the General Journal)
The closing of the VAT Input and VAT Output accounts form part of the regular entries
which usually takes place at the end of each month.
Follows next is the recording of the above transactions in the Special Journals and
General Journal.
FINANCIAL ACCOUNTING: MADE EASY
76
JOURNALIZING
(1st Step of the Accounting Process)
The narrative transactions are recorded in the Special Journals and General Journal.
Take note that each amount column of the Special Journals are totalled while the
General Journal is not.
Purchases Journal
2020
Jan.
Suppliers
6
Terms
Robinson
10%-15
Plaza
days
Cebu Plaza 30 days
Fair
Charge
Sales
Invoice
No.
3610
VAT
Accounts
Purchases Input
Payable
Tax
Cr.
Dr.
Dr.
134,400 120,000
14,400
1923
20,160
18,000
2,160
154,560
138,000
16,560
Total
Sales Journal
2020
Customers
Terms
Jan. 8 Dipolog Complex
Cagayan
Supermart
Butuan
Commercial
5%-15
days
30 days
30 days
Charge
Sales
Invoice
No.
0942
Accounts
Sales
Receivable
VAT
OutputTax
Dr.
89,600
Cr.
80,000
Cr.
9,600
0943
39,200
35,000
4,200
0944
44,800
40,000
4,800
173,600
155,000
18,600
Total
Cash Receipts Journal
Customers/
Payor
2020
Ja
n.
1
6
Koronadal
Mart
Dadiangas
Commercial
Ozamis
Supermart
Cash
Sales
Inv./
OR
0757
0758
092
Cash
In
Bank
Dr.
100,8
00
28,00
0
2,240
Sales
Cr.
90,00
0
25,00
0
Accoun
ts
Receiv
able
Cr.
VAT
Outp
ut
Cr.
10,80
0
3,000
SUNDRIES
Accou
nt
Tiles
Dr.
Purch
ase
Ret. &
Allow.
VAT
Cr.
2,00
0
240
FINANCIAL ACCOUNTING: MADE EASY
Dipolog
Complex
Total
093
85,12
0
216,1
60
115,0
00
77
86,600
(480)
89,600
13,80
0
(480)
Input
Sales
Discou
nts
4,0
00
4,0
00
2,24
0
FINANCIAL ACCOUNTING: MADE EASY
78
Cash Payments Journal
PAYEE
Date
2020
Ja
n.
4
9
EXPLANATIO
N
City Treasurer’s Business
Office
Permits
Philtranco
Freight
Handling
Check
Vouch
er No.
01
& 02
Chec
k No.
5343
61
5343
62
Cash
in
Bank
Cr.
14,85
0
3,450
Purcha
ses
VAT
Input
Tax
Dr.
Dr.
Accou
nts
Payabl
e
Dr.
SUNDRIES
ACCOUNTS
Taxes
Licenses
Freight-out
Freight-in
1
7
2
0
Ozamis
Superstore
Iligan
Merchandising
J. Saberon
Robinson Plaza
2
4
2
7
3
0
BIR
Condrado
Baugbog
Cash
Cash.
Inv.
#5014
Cash.
Inv.
#9362
Owner’s
Drawing
Payment
of
Acct.
VAT
Remittance
Light,Water &
Tel.
Monthly
Payroll
03
04
05
06
07
08
09
5343
63
5343
64
5343
65
5343
66
5343
67
5343
68
5343
69
100,8
00
44,80
0
10,00
0
120,9
60
33,60
0
4,800
90,000
32,00
0
365,2
60
______
40,000
2,450
1,000
10,80
0
4,800
134,40
0
(1,44
0)
130,00
0
AMOUNT
Dr.
Cr.
& 14,850
____
_
15,60
0
(1,44
0)
_____
_
134,00
0
J.
Saberon, 10,000
Drawing
Purchase
Discounts
VAT Payable
33,600
Utilities
Expense
Salaries
Wages
12,0
00
4,800
& 32,000
____
98,700
12,0
00
SUMMARY OF SUNDRIES
VAT Payable
J. Saberon, Drawing
Dr.
33,600
10,000
Cr.
SUNDRY
Accounts
are to be
posted
individually
to the
General
Ledger
FINANCIAL ACCOUNTING: MADE EASY
79
Freight-in
Salaries & Wages
Taxes and Licenses
Freight-out
Utilities Expense
Purchase Discounts
Total
1,000
32,000
14,850
2,450
4,800
_____
_
98,700
12,00
0
12,00
0
FINANCIAL ACCOUNTING: MADE EASY
80
General Journal
2020
Particulars
Jan
11 Sales Returns & Allowances
Output Tax
Accounts
Receivable-Butuan
Commercial
Merchandise
returned
by
customer.
14 Accounts Payable-Cebu Plaza Fair
Purchase Returns & Allowances
Input Tax
Merchandise returned by supplier.
Folio
L-21
L-14
L-3
Debit
3,000
360
L-13
L-24
L-8
1,120
31 Output Tax
L-14
Input Tax
L-8
VAT Payable
L-15
To close the Output and Input Tax
Accounts and set-up the VAT
Payable.
Credit
3,360
1,000
120
31,560
30,360
1,200
POSTING TO THE LEDGER
-General and Subsidiary(2nd Step of the Accounting Process)
Posting of entries to each of the Special Journal is usually done at the end of every
month which is on a per total basis while entries ibn thje General Jouranl are posted to
the General Ledger one by one or entry after entry.
Only ledger accounts that are affected in the posting process are being shown in order
to economize space for the ledgers. The same procedures are followed as discussed
and illustrated on Chapter 6, pages 194-197.
GENERAL LEDGER
Cash in Bank
2020
Particulars
Jan. 1
Beg. Balance
31
435,900
Petty Cash Fund-Bank
2020
Particulars
Jan. 1
Beg. Balance
F
Debit
585,000
CRJ 216,160
F
Debit
1,000
2020
Jan.
2020
Particulars
F
CPJ
Particulars
F
31
Page 1
Credit
365,260
Page 2
Credit
FINANCIAL ACCOUNTING: MADE EASY
Accounts Receivable
2020
Particulars
Jan. 1
Beg. Balance
31
170,640
F
SJ
Estimated Uncollectible Accounts
2020
Particulars
F
Merchandise Inventory
2020
Particulars
Jan. 1 Beg. Balance
F
81
Debit
90,000
173,600
2020
Jan.
Debit
2020
Jan.
Debit
180,000
F
J-1
CRJ
Particulars
Beg.
Balance
F
Particulars
F
Page 5
Credit
11
31
1
2020
Page 3
Credit
3,360
89,600
Particulars
Page 4
Credit
4,000
Supplies Inventory
2020
Particulars
Jan. 1 Beg. Balance
F
Debit
11,000
2020
Particulars
F
Page 6
Credit
Prepaid Rent
2020
Particulars
Jan. 1 Beg. Balance
F
Debit
20,000
2020
Particulars
F
Page 7
Credit
F
Debit
PJ
16,560
CPJ 15,600
2020
Jan.
Particulars
F
J-1
CPJ
CRJ
J-1
Page 8
Credit
120
1,440
240
30,360
F
Page 9
Credit
Input Tax
2020
Particulars
Jan. 31
14
31
31
31
total
Furniture & Fixtures
2020
Particulars
Jan. 1 Beg. Balance
F
Debit
230,000
2020
Particulars
Accumulated Depreciation - Furniture & Fixtures
2020
Particulars
F
Debit
2020
Jan.
1
Particulars
Beg.
Balance
F
Page
10
Credit
45,000
FINANCIAL ACCOUNTING: MADE EASY
82
Store Equipment
2020
Jan. 1
Particulars
Beg. Balance
F
Debit
160,000
2020
Particulars
F
Accumulated Depreciation – Store Equipment
2020
Particulars
F
Debit
2020
Jan.
1
Particulars
Beg.
Balance
F
Accounts Payable
2020
Particulars
Jan. 14
F
J-1
Debit
1,120
CPJ
134,400
2020
Jan.
1
Particulars
Beg.
Balance
31
F
Page
11
Credit
Page
12
Credit
16,000
Page
13
Credit
281,000
PJ
154,560
F
SJ
Page
14
Credit
18,600
CRJ
13,320
300,040
Output Tax
2020
Particulars
Jan. 11
31
F
J-1
Debit
360
J-1
31,560
2020
Jan.
31
Particulars
Beg.
Balance
31
1,200
VAT Payable
2020
Particulars
Jan. 31
F
Debit
CPJ 21,000
2020
Jan.
1
Particulars
Beg.
Balance
31
F
J-1
J. Saberon, Capital
2020
Particulars
F
Debit
2020
Jan.
1
Particulars
Beg.
Balance
F
J. Saberon, Drawing
2020
Particulars
F
Debit
2020
Particulars
F
Page
15
Credit
21,000
1,200
Page
16
Credit
897,400
Page
17
Credit
FINANCIAL ACCOUNTING: MADE EASY
Jan.
31
83
CPJ 10,000
Sales
2020
Particulars
F
Debit
2020
Jan.
Particulars
31
31
F
SJ
CRJ
Page
19
Credit
155,000
115,000
F
Page
20
Credit
F
Page
21
Credit
F
Page
22
Credit
F
CPJ
Page
23
Credit
12,000
F
J-1
CRJ
Page
24
Credit
1,000
2,000
F
Page
25
Credit
270,000
Sales Discounts
2020
Particulars
Jan. 31
F
Debit
CRJ 4,000
2020
Particulars
Sales Returns & Allowances
2020
Particulars
Jan. 11
F
J-1
Debit
3,000
2020
Particulars
Purchases
2020
Particulars
Jan. 31
F
Debit
PJ
138,000
CPJ 130,000
2020
Particulars
268,000
Purchase Discounts
2020
Particulars
F
Debit
2020
Jan.
Particulars
31
Purchase Returns & Allowances
2020
Particulars
F
Debit
2020
Jan.
Particulars
14
31
3,000
Freight-in
2020
Particulars
Jan. 31
F
Debit
CPJ 1,000
2020
Particulars
FINANCIAL ACCOUNTING: MADE EASY
84
Salaries and Wages
2020
Particulars
Jan. 31
F
Debit
CPJ 32,000
2020
Particulars
F
Page
28
Credit
F
Page
29
Credit
F
Page
30
Credit
F
Page
31
Credit
Taxes and Licenses
2020
Particulars
Jan. 31
F
Debit
CPJ 14,850
2020
Particulars
Freight-out
2020
Particulars
Jan. 31
F
Debit
CPJ 2,450
2020
Particulars
Utilities Expense
2020
Particulars
Jan. 31
F
Debit
CPJ 4,800
2020
Particulars
SUBSIDIARY LEDGER
The Accounts Receivable and Accounts Payable columns in each of the Special Jouirnal
as well as those appearing in the General Journal are alos posted to their respective
subsidiary ledgers for debtors and creditors and Schedule of Accounts Receivable and
Accounts Payable are then prepared. The sanme procedures are followed un posting to
the subsidiary ledger as already discussed and uilluste=rated in ______ , page ____.
Accounts Receivable- Controlling Account
2020
Particulars
F
Debit
Jan. 1
Beg. Balance
90,000
31
SJ
173,600
170,640
2020
Jan.
Particulars
11
31
F
J-1
CRJ
Page 3
Credit
3,360
89,600
Accounts Receivable-Subsidiary Ledger
(The Subsidiary ledgers are prepared in an alphabetical order)
Butuan Commercial
Butuan City
2020
Particulars
Jan. 1
Beginning Balance
8
Charge Invoice No. 0944
11
Credit Memo No. 5
F
Debit
SJ
GJ-1
44,800
Credit
3,360
Balance
30,000
74,800
71,440
FINANCIAL ACCOUNTING: MADE EASY
Cagayan Supermarket
Cagayan de Oro City
2020
Particulars
Jan. 1
Beginning Balance
8
Charge Invoice No. 0943
85
F
Debit
SJ
39,200
Credit
Balance
40,000
79,200
79,200
Dipolog Complex
Dipolog City
2020
Particulars
Jan. 1
Beginning Balance
8
Charge Invoice No. 0942
21
Official Receipt No. 093
F
Debit
SJ
CRJ
89,600
Credit
Balance
20,000
109,600
89,600
20,000
Centerpoint Commercial
Schedule of Accounts Receivable
As of January 31,2020
Butuan Commerial
Cagayan Supermarket
Dipolog Complex
Total
71,440
79,200
20,000
170,640
This amount reconciles with the balance of Accounts Receivable account appearing in
both Trial Balance and Balance Sheet in the amount of 170,640 on page _____.
Accounts Payable-Controlling Account
2020
Particulars
Jan. 14
F
J-1
Debit
1,120
CPJ
134,400
2020
Jan.
1
Particulars
Beg.
Balance
31
PJ
300,040
Accounts Payable-Subsidiary Ledger
F
Page
13
Credit
281,000
154,560
FINANCIAL ACCOUNTING: MADE EASY
86
(The Subsidiary ledgers are prepared in an alphabetical order)
Cebu Plaza Fair
Cebu City
2020
Particulars
Jan. 1
Beginning Balance
6
Charge Invoice No. 1923
14
Debit Memo No. 3
Robinson Plaza
Butuan City
2020
Particulars
Jan. 1
Beginning Balance
6
Charge Invoice No. 1923
20
Check Voucher No. 8
F
Debit
PJ
GJ-1
1,120
F
Debit
PJ
CPJ
Credit
Balance
94,000
20,160
113,040
Credit
134,400
134,400
Balance
187,000
169,400
187,000
Centerpoint Commercial
Schedule of Accounts Payable
As of January 31,2020
Cebu Plaza Fair
Robinsons Plaza
Total
113,040
187,000
300,040
This amount reconciles with the balance of Accounts Payable account appearing in both
Trial Balance and Balance Sheet in the amount of 300,040 on page _____.
TRIAL BALANCE PREPARATION
(3rd Step of the Accounting Process)
After fooring has been done in the General Ledger, a list of account is prepared in a
summary form. This is called Trial Blance. The same procedures are followed as
discussed in ____ on page ___.
The trial balance of Centerpoint Commercial is presented in the next page:
Centerpoint Commercial
Trial Balance
January 31, 2020
Account Titles
Cash in Bank
Petty Cash Fund
Debit
435,900
1,000
Credit
FINANCIAL ACCOUNTING: MADE EASY
87
Accounts Receivable
Estimated Uncollectible Accounts
Merchandise Inventory, Jan. 1
Supplies Inventory
Prepaid Rent
Furniture & Fixtures
Accumulated Depreciation – Furniture & Fixtures
Store Equipment
Accumulated Depreciation – Store Equioment
Accounts Payable
VAT Payable
J. Saberon, Capital
J. Saberon, Drawing
Sales
Sales Discounts
Sales Returns & Allowances
Purchases
Purchase Discounts
Purchase Returns & Allowances
Freight-in
Salaries and Wages
Taxes and Licenses
Freight-out
Utilities Expense
Total
170,640
4,000
180,000
11,000
20,000
230,000
45,000
160,000
16,000
300,040
1,200
897,400
10,000
270,000
4,000
3,000
268,000
12,000
3,000
1,000
32,000
14,850
2,450
4,800
1,548,640
1,548,640
ADJUSTING JOURNAL ENTRIES(4th Step of the Accounting Process)
In actual accounting practice, adjusting entries are first posted or entered in worksheet
before finally and formally recorded in the General Journal.
Going back to Centerpoint Commercial, let us assume that the following data are given
fpor adjustments at the end of January 2020.
a) Merchandising Inventory on January 31, 2020 as determined through physical
counting costs 253,000.
b) Provision for uncollectible accounts should be borought up to 2% of net sales.
c) Supplies inventory on January 31, 2020 amounted to 8,000.
d) Expired portion of unprepaid rent, 5,000.
e) The depreciation of the following property and equipment are yet to be recorded:
Furniture and Fixtures
3,800
Store Equipment
2,500
Total
6,300
The following are the Adjusting Journal Entries in January 31, 2020.
a) Uncollectible Accounts
1,260
FINANCIAL ACCOUNTING: MADE EASY
88
Estimated Uncollectible Accounts
1,260
To set-up provivion fro uncollectible accounts.
Computation:
Desired Provision for Uncollectible Accounts:
Sales
Less: Sales Discounts
Sales Returns & Allowances
Net Sales
270,000
4,000
3,000
Desired Allowance
Less: Recorded Allowance
Amount of Adjustment
7,000
263,000
X 2%
5,260
4,000
1,260
b) Supplies Used
3,000
Supplies Inventory
3,000
Tpo record cost of supplies used.
c) Rent Expense
5,000
Prepaid Rentt
5,000
To record the expired podtion of advance rental payment.
d) Rent Expense
5,000
Prepaid Rent
5,000
To record the expired portion of advance rental payment.
The Adjusting Journal Entries are formally recorded in the General Journal as shown on
the next page:
General Journal
Date
Particulars
Folio
Jan. 31 Uncollectible Accounts
C
Estimated Uncollectible Accounts
L-4
To set-up provision for uncollectible
accounts.
Debit
1,260
1,260
Supplies Used
Supplies Inventory
To record cost of supplies used.
L-32
L-6
3,000
Rent Expense
Prepaid Rent
To record the expired
advance
Rental payment.
L-33
L-7
5,000
portion
of
Credit
3,000
5,000
FINANCIAL ACCOUNTING: MADE EASY
89
Depreciation Expense
L-27
Accumulated
Depreciation-Furniture
& L-10
Fixtures
Accumulated Depreciation-Store Equipment L-12
To record depreciation of property &
& equipment.
6,300
3,800
2,500
The above adjusting entries that are recorded in the General Journl will also be posted
to General Ledger. Only accounts affected in the adjusting entry are shown posted to the
ledger as follows:
Estimated Uncollectible Account
2020
Particulars
F
Debit
2020
Jan.
F
Page 4
Credit
4,000
GJ-2
1,260
31
Particulars
AJE
F
GJ-2
Page 6
Credit
3,000
31
Particulars
AJE
F
GJ-2
Page 7
Credit
5,000
1
Particulars
Beg.
Balance
31
5,260
Supplies Inventory
2020
Particulars
Jan. 1 Beg. Balance
F
Debit
11,000
2020
Jan.
Debit
20,000
2020
Jan.
8,000
Prepaid Rent
2020
Particulars
Jan. 1 Beg. Balance
F
15,000
Accumulated Depreciation - Furniture & Fixtures
2020
Particulars
F
Debit
2020
Jan.
1
31
Particulars
Beg.
Balance
AJE
F
Page
10
Credit
45,000
GJ-2
3,800
F
Page
12
Credit
48,800
Accumulated Depreciation – Store Equipment
2020
Particulars
F
Debit
2020
Particulars
FINANCIAL ACCOUNTING: MADE EASY
90
Jan.
1
31
Beg.
Balance
AJE
16,000
GJ-2
2,500
Particulars
F
Page
26
Credit
Particulars
AJE
Page
27
F
Credit
GJ-2 6,300
Particulars
F
Page
32
Credit
F
Page
31
Credit
18,500
Uncollectible Account Expense
2020
Particulars
Jan. 31 AJE
F
GJ-2
Debit
1,260
2020
Depreciation Expense
2020
Particulars
F
Debit
2020
Jan.
31
Supplies Used
2020
Particulars
Jan. 31 AJE
F
GJ-2
Debit
3,000
2020
Rent Expense
2020
Particulars
Jan. 31 AJE
F
GJ-2
Debit
5,000
2020
Particulars
WORKSHEET
(5th Step of the Accounting Process)
The same procedure is followed as discussed on page ___ of Unit __. A 10-Column
worksheet of Centerpoint Commercial is presented on page ___.
FINANCIAL ACCOUNTING: MADE EASY
91
FINANCIAL ACCOUNTING: MADE EASY
10-Column Worksheet
Unadjusted Trial
Adjustments
Balance
Account Titles
Dr.
Cr.
Dr.
Cr.
Cash in Bank
435,90
0
Petty Cash Fund
1,000
Accounts Receivable
170,64
0
Estimated
Uncollectible
4,000
a)1,26
Accounts
0
Merchandise
Inventory, 180,00
January 1
0
Supplies Inventory
11,000
b)
3,000
Prepaid Rent
20,000
c)5,00
0
Furniture & Fixtures
230,00
0
Acc. Depreciation -Furniture &
45,000
d)3,80
Fixtures
0
Store Equipment
160,00
0
Acc. Depreciation –Store
16,000
d)2,50
Equipment
0
Accounts Payable
300,04
0
VAT Payable
1,200
J. Saberon, Capital
897,40
0
J. Saberon, Drawing
10,000
Sales
270,00
0
Sales Returns & Allowances
3,000
92
Centerpoint Commercial
Worksheet
For the month ended January 31, 2020
Adjusted
Trial Income
Balance
Statement
Dr.
Cr.
Dr.
Cr.
435,90
0
1,000
170,64
0
5,260
180,00
0
8,000
Balance Sheet
Dr.
435,900
1,000
170,640
5,260
180,00
0
8,000
15,000
15,000
230,00
0
230,000
48,800
48,800
160,00
0
160,000
18,500
18,500
300,040
300,04
0
1,200
897,40
0
1,200
897,400
10,000
10,000
270,000
3,000
Cr.
270,00
0
3,000
FINANCIAL ACCOUNTING: MADE EASY
Sales Discounts
Purchases
Purchase Discounts
Purchase
Returns
Allowances
Freight-In
Salaries Expense
Taxes and Licenses
Freight-out
Utilities Expense
4,000
268,00
0
Adjustments:
Merchandise
Inventory,
January 31
Uncollectible Accounts
Rent Expense
Depreciation Expense
Total
Profit
Total
4,000
268,00
0
12,000
3,000
&
Total
Supplies Used
93
1,000
32,000
14,850
2,450
4,800
1,548,6
40
4,000
268,00
0
12,000
3,000
1,000
32,000
14,850
2,450
4,800
______
___
1,548,6
40
12,000
3,000
1,000
32,000
14,850
2,450
4,800
253,00
0
a)
1,260
b)
3,000
c)
5,000
d)
6,300
15,560
_____
___
15,560
1,260
1,260
3,000
3,000
5,000
5,000
6,300
6,300
1,556,2
00
1,556,20
0
525,66
0
12,340
538,00
0
253,000
4,550
538,00
0
______
___
538,00
0
1,283,54
0
_______
___
1,283,54
0
1,271,2
00
12,340
1,283,5
40
FINANCIAL ACCOUNTING: MADE EASY
94
FINANCIAL STATEMENTS
(6th Step of the Accounting Process)
INCOME STATEMENT
Shown below is the Income Statement of Centerpoint Commercial using the MultipleStep Form. (Function of the Expense Method):
Centerpoint Commercial
Income Statement
For the month ended January 31, 2020
Net Sales
Gross Sales
Less: Sales Returns & Allowances
Sales Discounts
Net Sales
Cost of Goods Sold
Merchandise Inventory, Jan. 1
Purchases
Less:
Purchase
Returns
& 3,000
Allowances
Purchase Discounts
12,000
Freight-in
Net Purchase
Goods Available for Sale
Less: Merchandise Inventory, Jan.
31
Cost of Goods Sold
Gross Margin
Operating Expenses
Selling Expenses
Sales Salaries
Freight-out
Total Selling Expenses
Administrative Expenses
Uncollectible Accounts
Supplies Used
Salaries Expense
Taxes and Licenses
Utilities Expense
Rent Expense
Depreciation Expense
Total
Administrative
Expenses
Profit
270,000
3,000
4,000
7,000
263,000
180,000
268,000
15,000
253,000
__1,000
254,000
434,000
253,000
181,000
82,000
15,000
_2,450
17,450
1,260
3,000
32,000
14,850
4,800
5,000
__6,300
__52,210
_69,660
12,340
FINANCIAL ACCOUNTING: MADE EASY
95
BALANCE SHEET
Shown below is the Balance Sheet of Centerpoint Commercial as of January 31, 2020
following the Account Form.
Centerpoint Commercial
Balance Sheet
As of January 31, 2020
LIABILITIES
EQUITY
ASSETS
Current Assets:
Cash in Bank
Petty Cash Fund
Accounts Receivable
170,640
Non-Current Assets:
Property and Equipment
Furniture and Fixtures
Acc.
Dep’n-Furniture
Fixtures
5,260
165,380
253,000
8,000
15,000
878,280
OWNER’S EQUITY
230,000
& 48,800
Store Equipment
160,000
Acc.Dep’n-Store Equipment 18,500
Total
Property
&
Equipment
Total Assets
OWNER’S
LIABILITY
Current Liability:
Accounts Payable
300,040
VAT Payable
1,200
Total
Current 301,240
Liabilities
435,900
1,000
Est. Uncollectible Accounts
Merchandise Inventory
Supplies Inventory
Prepaid Rent
Total Current Assets
&
181,200
J. Saberon, Capital
899,740
141,500
322,700
1,200,98
0
Total Liabilities and
Owner’s Equity
1,200,98
0
STATEMENT OF CHANGES IN OWNER’S EQUITY
Shown below is the Statement of Changes in Owner’s Equity of Centerpoint Commercial
for the month ended January 31,2020.
Centerpoint Commercial
Statement of Changes in Owner’s Equity
For the month ended January 31, 2020
J. Saberon, Owner’s Equity – Beginning
897,400
FINANCIAL ACCOUNTING: MADE EASY
Add: Profit
Total
Less: J. Saberon, Personal
J. Saberon, Owner’s Equity - Ending
96
__12,340
909,740
__10,000
899,740
Our presentation would only be up to Financial Statements. We need not show anymore
how closding entries and post-closing trial balance are done. The five (5) steps
comprising the closing of books of accounts of ouien Distributors that are found in Unit
___, pages ____ and post-closing trial alance preparation that are found in the same
unit, peges ____ are the ssame steps and procedures as being applied and followd in
Centerpooint Commercial.
We presented, however the Worksheet and Fincnaila Statements of Centerpoint
CO,,ercial for you to see how VAT Payable is presented after closing the VAT i=Input to
VAT Output Tax whoich form pqart of the monthly egular entry as being shown on page
)____.
What is important, is for you tpo see that entries in the Special Books are totlaed at the
end of each month before posting is done to the General Ledger. On the other hand,
entries in the General Ledger are noit totalled but are poste dindiidually, oine enyrt after
the other in the General Ledger.
FINANCIAL ACCOUNTING: MADE EASY
97
ACCOUNTING FOR MANUFACTURING CONCERN
To start with, you are being shown with a diagram comparing the flow of operations of a
merchandising concern with that of a manufacturing business.
Trading or Merchandising Concern
Sells Goods
Purchases Goods
Manufacturing Concern
Purchases
Raw
Materials
Processes and
Converts Raw
Materials into
Finished Products
Sells Finished
Goods
A manufacturer buys raw materials and converts them into finished products by
employing manpower, machinery, etc., and incurring expenses. These finished products
are bought by a merchandiser and sells the same to its customers.
WHAT ARE THE ELEMENTS OF MANUFACTURING COST?
No product can be be said to be in its “finished form un;less 100% of cost elements are
present”. There are three (30=) cost components of a munifacturing concern, these are
as follows:
Direct Materials – refers to the cost of raw materials which are charged directy and can
be traced to have form part of the finished product. Examples of direct materials are
lumber and bamboo for the manufacturing of tables and chairs, steel for the
manufacturing of automobiles, textile for the manufacturing of shirts, etc. This is the first
element that enters into the finished product. The cost of nails, varnish, wood glues,
dyes, etc. although these form part of the finished product, they are not considered as
direct materials because the amounts are relatively small that it does not warrant for cost
allocation. Instead, these are called “indirect materias”.
Direct Labor – refers to wages paid who are working directly on the product. This is the
second element of cost thet enters into the finished product. The salaries of plant
supervisors, foremen, timekeepers, janitors, and the like are not considered as direct
labor because the nature of their works cannot be charged to a particular product.
Instead, these are called “indirect labor”.
Manufacturing Overhead – refers to all costs incurred in the manufacture of product
other that than direct materials and direct labor. The incurrence of these costs have
helped in the completion of the product but cannot be traced to what specific product.
FINANCIAL ACCOUNTING: MADE EASY
98
Examples are indirect materials, indirect labor, factory supplies, shop light and power,
depreciation of factory equipment, amortization of property insurance and amortization of
intangible assets. This is the third and last element of costs that enters into the finished
product.
The sum or total of direct materials, direct labor and manufacturing overhead is called
“Factory Cost” or “Manufacturing Cost”. The sum of direct materials and direct labor is
called “Prime Cost” while the sum of direct labor and manufacturing overhead is called
“Conversion Cost”.
WHAT IS MANUFACTRING NON-COST SYSTEM?
Non-Cost System is a type of accounting system which does not provide a flow of cost of
manufacturing process in details and precise measurement or costing of a product being
manufactures.
WHAT ARE THE INVENTORIES IF A MANUFACTRUING CONCERN?
There are three major types of inventories common to manufacturing concern which are
all valued at “cost”. The inventories are presented and shown in the current asset
section of the Statement of Financial Position or Balance Sheet and are arranged “in
order of liquidity”.(Ready conversion to Cash)
Finished Goods Inventory – there are completely manufactured or fully processed goods
which are ready for sale. The products are said to be 100% complete in terms of
materials, labor and overhead. If at the end of the given period, there are finished goods
that are left unsold and are on hand, these are called “Finished Goods Inventory, End”.
At the beginning of the next accounting period, these will become “Finished Goods
Inventory, Beginning”.
Goods in Process Inventory – if there are products or goods or goods where works have
beeb started alrady but are not in finished form yet or shall we say “not 100% complete”
at the end of the accounting period, these are called “Goods in Process Inventory, End”.
AT the beginning of the next accounting period, these will become “Goods in Process
Inventory, beginning”. The other term for this is “Work in Process Inventory”.
Raw Materials Inventory – the cost of raw materials that were purchased but were not
yet issued to production and are on hand at the end of a given period is called “Raw
Materials Inventory, End”. AT the beginning of the next accounting period, this becomes
“Raw Materials Inventory, Beginning”.
WHAT IS A VOUCHER SYSTEM?
Voucher system is a form of an internal control over cash disbursements whereby all
payments are made by checks except for small expenses where payment is made out of
the petty cash fund. A voucher is prepared with attached invoices or supporting
documents before making payments to ensue correctness if the amounts to be paid.
Purchases of raw materisl and supplies, acquisition of fixed assets, payroll and other
transactions which require cash payments are recorded in a book called ‘Voucher
Register” which takes place of a “Purchase Book”. The entry in the voucher register
FINANCIAL ACCOUNTING: MADE EASY
99
requires all credit to “Vouchers Payable” accounts so that there is always immediate
recognition of a liability.
When checks are issued for payments, there are recorded in a book called “Check
Register” which takes place of the “Cash Disbursements”. All payments made are
debited to “Vouchers Payable” account to close the Vouchers Payable set-up in the
Voucher Register.
RECORDING BASIC MANUFACTURING TRANSACTIONS (VOUCHER SYSTEM)
A-PURCHASES OF RAW MATERIALS AND FACTORY SUPPLIES
1. To record cost of raw materials purchased.
Purchases-Raw Materials
Vouchers Payable
xx
xx
2. To record cost of defective raw materials returned.
Vouchers Payable
xx
Purchase Returns & Allowances
xx
3. To record cost of freight and handling of raw materials incurred.
Freight In
xx
Vouchers Payable
xx
4. To record payment of freight and handling.
Vouchers Payable
xx
Cash in Bank
xx
5. To record indirect materials and factory supplies (Expense Method) purchased.
Indirect Materials/factory
Supplies Expense
Vouchers Payable
xx
xx
xx
Note:
a) All cost of materials and supplies are always recorded in the Voucher Register
even these are purchased in cash. In other words, a liability is always
recognized.
B-FACTORY PAYROLL (Direct and Indirect Labor)
1. To record payroll for factory workers/supervisors/foremen, etc.
Direct Labor
xx
Indirect Labor
xx
Withholding Tax Payable
xx
FINANCIAL ACCOUNTING: MADE EASY
100
SSS Premium Payable
Philhealth Premium Payable xx
Vouchers Payable
xx
xx
2. To record upon payment of payroll:
Vouchers Payable
xx
Cash in Bank
xx
3. The Employer’s share of SSS/EC and Philhealth Premium for factory workers is
charged to factory overhead by the following pro-forma journal entry:
Factory Overhead – SSS/EC xx
SSS Premium Payable
Philhealth Premium Payable xx
xx
4. Unpaid Factory Payroll is set-up by the following pro-forma journal entry:
Direct Labor
xx
Indirect Labor
xx
Accrued Payroll
xx
C-OTHER MANUFACTURING EXPENSES (Pro-forma Entry)
1. To record amortization of Intangible Asset.
Amortization of Intangible Assets
Intangible Assets
xx
xx
2. To record depreciation of factory building.
Depreciation- Factory Building
Accumulated Depreciation
xx
xx
THE MANUFACTURING STATEMENTS
Statement of Cost of Goods Manufactured – this is a schedule prepared to supplement
the Income Statement of manufacturing cobncern which summarizes all the cost
elements of the goods being produced during the period. The formation of this
Statement is shown in page ___.
Statement of Cost of Goods Manufactured and Sold – this is the body of the Income
Statement itself. The finished goods at the beginning of the period is added to the cost of
goods manufacture during the period to determine the total goods available for sale. The
finished goods inventory at the end of the period is then deducted from the total goods
available for sale to arrive at the Cost of Goods Sold. While merchandising concern uses
the account title “Merchandise Inventory”, The formation of this statement is shown on
page ____.
FINANCIAL ACCOUNTING: MADE EASY
101
Statement of Comprehensive Income or Income Statement – the manner an Income
Statement is prepared under manufacturing concern is basically similar with that of
merchadsing oncern except in the cost of sales section. The formation of an Income
Statement of a manufacturing firm is shown on page __.
Statement of Financial Position or Balance Sheet – the Balance Sheet of a
merchandising business shows one inventory item only and that is the “Merchandise
Inventory”. For a manufacturing firm, there are three (3) major types of inventories not to
mention the Factory Supplies Inventory. These are the inventories:
Finished Goods
Work in Process
Raw Materials
The formation of the Balance Sheet is shown on page ___.
Worksheet – the Worksheet of a manufacturing firm provides an additional par of column
for the Cost of Goods Manufactures labelled as “Manufacturing” which a merchandising
concern doesn’t have. All accounts comprising the Cost of Gods Manufactured are
extended to the Manufacturing Column represents the Cost of Goods Manufactures
which is then extended to the debit sied of the Income Statement. The formation of a
worksheet is shown on page ___.
The preparation of Adjusting and Closing Entries will be discussed in the given
illustrative problem of Sarangani Woodcraft on the next page.
Saranggani Woodcraft
Trial Balance
January 31, 2020
FINANCIAL ACCOUNTING: MADE EASY
Cash in Bank
Accounts Receivable
Finished Goods Inventory, Jan.1
Work in Process Inventory, Jan.1
Raw Materials Inventory, Jan.1
Factory Equipment
Accumulated Depreciation-Factory Equipment
Office Equipment
Accumulated Depreciation-Office Equipment
Patent
Vouchers Payable
C. Quintero, Capital
Sales
Purchases-Raw Materials
Freight In
Direct Labor
Indirect Materials
Indirect Labor
Office Salaries
Repairs and Maintenance
Total
102
Debit
Credit
380,000
75,000
85,000
60,000
20,000
850,000
85,000
260,000
52,000
150,000
180,000
1,413,000
350,000
90,000
5,000
40,000
15,000
18,000
20,000
12,000
2,080,000
________
2,080,000
Additional data for adjustments
a) Inventories at the end of the month:
Finished Goods Inventory, Jan. 31 – 68,000
Work in Process Inventory, Jan. 31 – 42,000
Raw Materials Inventory, Jan. 31 – 35,000
b) The factory and office equipment depreciation for the month, 7,000 and 850
respectively.
c) Patent is amortized at 20% annually.
d) Repairs and maintenance is allocated as follows:
Factory -60% Office- 40%
Required:
1. A 10-Column Worksheet with colmuns for the following:
a) Trial Balance
b) Adjustments
c) Cost of Goods Manufactured or Manufacturing
d) Statement of Comprehensive Income (Income Statement)
e) Statement of Financial Position (Balance Sheet)
2. Statement of Comprehensive Income with Supporting Schedule Cost of Goods
Manufactured
3. Statement of Financial Position
4. Closing Entries
FINANCIAL ACCOUNTING: MADE EASY
5. Post-closing Trial Balance
103
FINANCIAL ACCOUNTING: MADE EASY
104
Requirement No. 1 – Worksheet
Saranggani Woodcraft
Worksheet
For the month ended January 31, 2020
Account Titles
Cash in Bank
Accounts
Receivable
Finished
Goods,
Jan.1
Work in Process,
Jan. 1
Raw
Materials,
Jan. 1
Factory Equipment
Acc. Dep’n-Factory
Eqpt.
Office Equipment
Acc. Dep’n-Office
Eqpt.
Patent
Vouchers Payable
C.
Capital
Sales
Trial Balance
Adjustments
Debit
380,000
75,000
Debit
Credit
85,000
Balance Sheet
Debit
380,000
75,000
Credit
85,000
60,000
60,000
20,000
20,000
850,000
850,000
85,000
d)
7,000
52,000
c)850
92,000
260,000
260,000
150,000
52,850
a)2,500
147,500
180,00
0
1,413,0
00
350,00
0
Quintero,
Purchases – Raw
Materials
Freight-in
Direct Labor
Indirect Labor
Indirect Materials
Office Salaries
Credit
Cost
of
Goods
Income Statement
Manufactured
Debit
Credit
Debit
Credit
180,000
1,413,00
0
350,000
90,000
90,000
5,000
40,000
15,000
18,000
20,000
5,000
40,000
15,000
18,000
20,000
FINANCIAL ACCOUNTING: MADE EASY
Repairs
Maintenance
Total
& 12,000
2,080,00
0
Finished
Goods,
Jan. 31
Work in Process,
Jan. 31
Raw
Materials,
Jan. 31
Dep’n
Factory
Eqpt.
Dep’n Office Eqpt.
Amortization
of
Patent
105
______
__
2,080,0
00
b)4,800
68,000
d)7,0
00
c)850
a)2,5
00
10,35
0
68,000
42,000
42,000
35,000
35,000
7,000
850
______
__
10,350
2,500
_______
262,300
77,000
Cost of Goods Manufactured
262,300
Profit
b)7,200
185,300
185,300
262,300
298,350
119,650
418,000
_________
_
418,000
________
___
1,857,500
_________
_
418,000
________
___
1,857,500
_______
__
1,737,85
0
119,650
1,857,50
0
FINANCIAL ACCOUNTING: MADE EASY
106
The adjusting entries that are entered in the Adjustment Column of this Worksheet are
hereunder summarized for your guide as follows:
Depreciation Expense – Factory Equipment 7,000
Depreciation Expense – Office Equipment 850
Accumulated Depreciation– Factory Equipment
Accumulated Depreciation– Office Equipment
4)
5)
Amortization of Patent
Patent
7,000
850
2,500
2,500
Take Note:
Adjustments of Finished Goods, Work in Process and Raw Materials Inventories are not
shown in the Adjustments column of the worksheets. Under “direct extension method”
these are directly extended to the following columns:
Inventory Items
a. Finished
Goods
Inventory,
Beginning
b. Finished Goods Inventory, End
c. Work
in
Beginning
Process
Extended to
Debit Side of the Income Statement
Column
Credit side of the Income Statement and
Debit Side of the Balance Sheet column
Inventory, Debit side of the Manufacturing or
d. Work in Process, Inventory, End
e. Raw Materials Inventory, Beginning
f.
Raw Materials Inventory, End
Cost of Goods Manufactured column
Credit side of the Manufacturing or
Cost of Goods Manufactured and
Debit side of the Balance Sheet Column
Debit side of the Manufacturing or
Cost of Goods Manufactured column
Debit side of the Manufacturing or
Cost of Goods Manufactured and
Debit side of the Balance Sheet
The “direct extension method of showing the inventory
illustrated below using
Trial
Adjustme Cost of Goods
Balance
nt
Manufactured
Dr.
Cr Dr.
Cr. Dr.
Cr.
.
Finished
85,00
Goods, Beg.
0
Work
In 60,00
60,00
Process, Beg.
0
0
Raw Materials, 20,00
20,00
Beg.
0
0
ADJUSTMENT
S:
Finished
Goods, Beg.
items in the worksheet is
Income
Statement
Dr.
Cr.
Balance
Sheet
Dr.
Cr
.
85,00
0
68,00
0
68,00
0
FINANCIAL ACCOUNTING: MADE EASY
Work
In
Process, Beg.
Raw Materials,
Beg.
107
42,00
0
35,00
0
42,00
0
35,00
0
The journal entry from these inventory adjustments are shown together with the closing
entries on page _____.
Requirement No. 2 – Statement of Comprehensive Income (See Income Statement
Column of the Worksheet)
Saranggani Woodcraft
Statement of Comprehensive Income
For the month ended January 31, 2020
Net Sales
Cost of Goods Sold
Finished Goods, Jan. 1
Add: Cost of Goods Manufactured (Schedule 1)
Cost of Goods Available for Sale
Less: Finished Goods, Jan. 31
Gross Profit
Less: General and Administrative Expenses
Office Salaries
Repairs and Maintenace
Depreciation Expense – Office Equipment
Profit
350,000
85,000
185,300
270,300
68,000
20,000
7,200
___850
202,300
147,700
28,050
119,650
Schedule 1 Schedule of Cost of Goods Manufactured
Saranggani Woodcraft
Statement of Cost of Goods Manufactured
For the month ended January 31, 2020
Direct Materiasl Used:
Raw Materials, Beg.
Add: Purchases-Raw Materials
Freight-in
Raw Materials Available for Use
Less: Raw Materials, End
20,000
90,000
5,000
95,000
115,000
35,000
Direct Labor
Manufacturing Overhead
Indirect Labor
Indirect Materials
Repairs and Maintenance
Depreciation-Factory Equipment
Amortization of Patent
80,000
40,000
15,000
18,000
4,800
7,000
2,500
47,300
FINANCIAL ACCOUNTING: MADE EASY
108
Total Manufacturing Cost
167,300
Add: Work in Process, Beg.
60,000
Total Costs Placed in Process
227,300
Less: Work in Process, End
42,000
Cost of Goods Manufactured
185,300
Requirement No. 3 – Statement of Financial Postion *See Balance Sheet Column of the
Worksheet)
Saranggani Woodcraft
Statement of Financial Position
As of January 31, 2020
ASSETS
Current Assets:
Cash in Bank
Accounts Receivable
Inventories:
Finished Goods
Work in Process
Raw Materials
Total Current Assets
Non-Current Assets:
Factory Equipment
Acc.
Dep’nEquipment
380,000
75,000
68,000
42,000
35,000
850,000
Factory 92,000
Office Equipment
Acc.Dep’n-Office Equipment
Total Non-Current Assets
260,000
52,850
Intangible Asset
Patent
Total Assets
145,000
600,000
758,000
207,150
965,150
147,500
1,712,650
LIABILITIES & OWNER’S EQUITY
Liability
Vouchers Payable
180,000
Owner’s Equity
C. Quintero, Capital
Total Liabilities and Owner’s Equity
1,532,650
1,712,650
CLOSING ENTRIES
Requirement No. 4 – Closing Entries
FINANCIAL ACCOUNTING: MADE EASY
109
The preparation of closing entries of a manufacturing concern consists of two major
steps. These are:
1) Closing of the manufacturing accounts
2) Closing of the income statement account
Step 1 a) Close the manufacturing accounts.
Guide: Debit the accounts with credit balances and credit the
“Manufacturing Asummary” account/. Credit the accounts with deboit balances and debit
the “Manufacturing Summary” account. Just take a llok at the Cost of Goods
MAnugfactured” column of the Worksheet.
Jan. 31
Work in Process Inventory, End
42,000
Raw Materials Inventory, End
35,000
Manufacturing Summary
77,000
To debit the manufacturing accounts eith credit
balances.
Manufacturing Summary
262,300
Work in Process Inventory, Beg.
60,000
Raw Materials Inventory, Beg
20,000
Purchases –Raw Materials
90,000
Freight-in
5,000
Direct Labor
40,000
Indirect Materials
18,000
Indirect Labor
15,000
Repairs and Maintenance
4,800
Depreciation-Factory Equipment
7,000
Amortization of Patent
2,500
To credit the manufacturimng accounts with the
debit balances.
b) Close the Manufactruign Summary to Inocme & Expense Summary account.
Note: The manufacturing summary account after posting showd a debit balance
of 185,300.
Manufacturing Summary
(Step 1- 262,300 77,000
a)
185,300
(Step
a)
1-
To close, is to credit the Manufacturing Summary by 185,300.
January 31
Income and Expense Summary
185,300
Manufacturing Summary
185,300
To close the Manufacturing Summary Account.
Step 2 a) Close the Income Statement or nominal accounts to Income And Expense
Summary account.
FINANCIAL ACCOUNTING: MADE EASY
110
Guide: Debit the accounts with credit balances and credit to “Income and
Expense Summary”. Credit the accpounts with debit balances and debit to “income and
Expense Sumamry” account.Just take a look at the Income Statemebt column of the
worksheet.
January 31
Sales
350,000
Finished Goods Inventory, End
68,000
Income and Expense Summary
418,000
To close sales and set-up finished goods inventory at the
end.
Income and Expense Summary
113,050
Finished Goods Inventory, Beg.
85,000
Repairs and Maintenance
7,200
Office Salaries
20,000
Depreciation – Office Equipment
850
TO credit nominal accounts with debit balances.
AT this point, the Income ad Expense Summary account will show a credit
balance of 119,650 which represents Profit.
Income and Expense Summary
(Step 1- 185,300 418,000 (Step
a)
a)
113,050
119,650
1-
c) Close the Income and Expense Summary account to Owner’s Equity.
January 31
Income and Expense Summary
119,650
C. Quintero, Capital
119,650
To close Income and Expense Summary to Owner’s
Equity.
Requirement No. 5 – Post-Closing Trial Balance
Saranggani Woodcraft
Post-closing Trial Balance
January 31, 2020
Account Titles
Cash in Bank
Accounts Receivable
Finished Goods Inventory
Debit
380,000
75,000
68,000
Credit
FINANCIAL ACCOUNTING: MADE EASY
Work in Process Inventory
Raw Materials Inventory
Factory Equipment
Accumulated Depreciation-Factory Equipment
Office Equipment
Accumulated Depreciation-Office Equipment
Patent
Voucher Payable
C. Quintero, Capital
Total
111
42,000
35,000
850,000
92,000
260,000
52,850
147,500
________
1,857,500
180,000
1,532,650
1,857,500
STATEMENT OF COST OF GOODS MANUFACTURED AND SOLD
A separate statement or schedule may be prepared to show “Cost of Sales” section in
the body of the Statement of Comprehensive Income or Income Statement which
comprises of the cost of goods that were manufactured at the end of a given period as
well as the inventories of finished goods.
Saranggani Woodcraft
Statement of Cost of Goods Manufactured and Sold
For the month ended January 31, 2020
Direct Materiasl Used:
Raw Materials, Beg.
Add: Purchases-Raw Materials
Freight-in
Raw Materials Available for Use
Less: Raw Materials, End
20,000
90,000
5,000
95,000
115,000
35,000
Direct Labor
Manufacturing Overhead
Indirect Labor
Indirect Materials
Repairs and Maintenance
Depreciation-Factory Equipment
Amortization of Patent
Total Manufacturing Cost
Add: Work in Process, Beg.
Total Costs Placed in Process
Less: Work in Process, End
Cost of Goods Manufactured
Less: Finished Goods Inventory, End
Cost of Goods Manufactured and Sold
80,000
40,000
15,000
18,000
4,800
7,000
2,500
47,300
167,300
60,000
227,300
42,000
185,300
68,000
202,300
When Statement of Cost of Goods Manufactured is already prepared to support the
Income Statement, the Cpost of Goods Sold is presented as follows:
FINANCIAL ACCOUNTING: MADE EASY
112
Cost of Goods Sold:
Finished Goods Inventory, Beginning
Add: Cost of Goods Manufactured (see statement)
Cost of Goods Available for Sale
Less: Finished Goods Inventory, End
Cost of Goods Sold
85,000
185,300
270,300
68,000
202,300