BASIC ACCOUNTING
Lecture Week 8
FINANCIAL STATEMENTS OF A MERCHANDISING OPERATION
Illustration:
Toribio Cayanan Tires have just started its operation entered into the following
transactions during the month of June 2019:
June
2
2
4
5
6
7
11
13
22
30
30
30
30
Toribio Cayanan invests P1,000,000 to his Toribio Cayanan Tires.
Purchased 1,000 tires at a cost of P600 per tire. Terms of payment: 1/10, net 45.
Paid trucking firm to ship the tires purchased on June 2.
Purchased 600 tires at a cost of P600 per tire. Terms of payment: 2/10, net 30.
Paid trucking firm P5,000 to ship the tires purchased on June 5.
Returned 150 of the tires purchased on June 2 because they were defective.
Received a credit on open account from the seller.
Paid for tires purchased on June 2.
Sold 700 tires purchased from those purchased on June 2. The selling price was
P900 per tire. Terms: 1/10, net 30.
Received cash from sale of tires on June 13.
Paid for tires purchased on June 5.
Paid rent for the month, P5,000.
Paid utilities for the month, P9,000.
Paid monthly salaries of staff, P10,500.
Step 1: Journalizing
For Periodic Inventory System:
DATE
Jun
ACCOUNTS TITLES
DEBIT
CREDIT
2 Cash
P
1,000,000.00
T. Cayanan, Capital
P
To record capital investment of Toribio Cayanan.
1,000,000.00
2 Purchases
600,000.00
Accounts Payable
To record purchase of Inventory (P600 x 1,000 tires).
600,000.00
4 Transportation In
Cash
To record transportation in.
8,000.00
8,000.00
5 Purchases
360,000.00
Accounts Payable
To record purchase of Inventory (P600 x 600 tires).
6 Transportation In
Cash
To record transportation in.
360,000.00
5,000.00
7 Accounts Payable
90,000.00
Purchase Returns and Allowances
To record returns of defective purchases from June 2.
11 Accounts Payable
510,000.00
Cash
Purchase Discounts
To record payment of purchases from June 2 with 1% discount.
{(P600,000-P90,000 returned purchases)*.01}
5,000.00
90,000.00
504,900.00
5,100.00
DATE
Jun
ACCOUNTS TITLES
13 Accounts Receivables
Sales
To record sales of 700 tires at P900.
DEBIT
P
CREDIT
630,000.00
P
630,000.00
22 Cash
623,700.00
Sales Discount
6,300.00
Accounts Receivables
To record collections from June 13 sales with 1% discount.
(P630,000*.01)
630,000.00
30 Accounts Payable
Cash
To record payment of purchases from June 5.
360,000.00
360,000.00
30 Rent Expense
Cash
To record payment of rent.
5,000.00
30 Utilities Expense
Cash
To record payment of monthly utilities.
9,000.00
30 Salaries Expense
Cash
To record payment of monthly salaries.
10,500.00
Step 2: Posting
5,000.00
9,000.00
10,500.00
Step 3: Preparing Trial Balance
DEBIT
Cash
Accounts Receivables
Accounts Payable
T. Cayanan, Capital
Sales
Sales Discount
Purchases
Purchase Discounts
Purchase Returns and Allowances
Transportation In
Rent Expense
Utilities Expense
Salaries Expense
CREDIT
721,300.00
1,000,000.00
630,000.00
6,300.00
960,000.00
5,100.00
90,000.00
13,000.00
5,000.00
9,000.00
10,500.00
1,725,100.00
1,725,100.00
Since no adjustments occurred, proceed to Step 6 Preparation of Financial Statements.
Step 6: Preparation of Financial Statements
STATEMENT OF FINANCIAL PERFORMANCE / INCOME STATEMENT
TORIBIO CAYANAN TIRES
Income Statement
For the month ended June 30, 2019
Net Sales
Sales
Less: Sales Discounts
P
Cost of Sales
Inventory, Beginning
Add: Purchases
P
Less: Purchase Returns and Allowances
Purchase Discounts
Add: Transportaion In
Net Purchases
Less: Inventory, End*
630,000.00
6,300.00 P
623,700.00
960,000.00
90,000.00
5,100.00
13,000.00
877,900.00
449,100.00
P
Gross Profit
Less: Operating Expenses
Rent Expense
Utilities Expense
Salaries Expense
5,000.00
9,000.00
10,500.00
Net Income
428,800.00
194,900.00
24,500.00
170,400.00
Take note:
Computation of Ending Inventory using FIFO (First-In First Out Inventory Method):
June 2 Purchases
Purchased inventory
Less: Returned inventory
Sold inventory*
came
Multiply: Cost
(P600 - (P600*1% discount))
Total Ending Inventory for June 2
First – In First –
Out method of
inventory valuation is a cost flow assumption that the first
1,000goods purchased are also the first
150goods sold. And therefore in our
illustration, the 700 tires sold on June 13
700
from June 2 purchases.
150
P
June 5 Purchases
Purchased inventory
Less: Returned inventory
Sold inventory*
Multiply: Cost
Total Ending Inventory for June 5
Total Ending Inventory
Purchases
Returned
Total inventory available for sale
Sold in June 13
Ending Inventory in Quantity
P
594.00
P
89,100.00
P
P
360,000.00
449,100.00
600
600
600.00
June 2
1,000
(150)
850
(700)
150
June 5
600
600
600
STATEMENT OF FINANCIAL POSITION / BALANCE SHEET
STATEMENT OF CASH FLOWS
Cash Flow from Operating Activities:
Cash received from Customers
Payments to Suppliers
Payments for Transportation In
Payments to Employees
Payments for Office Rent
Payments for Utilities
623,700.00
(864,900.00)
(13,000.00)
(10,500.00)
(5,000.00)
(9,000.00)
(278,700.00)
Net Cash flow from Operating Activities
Cash Flow from Investing Activities:
Payments to acquire service vehicles
Payments to acquire office equipment
-
Net Cash flow from Investing Activities
Cash Flow from Financing Activities:
Cash received as investments by the owner
1,000,000.00
Net Cash flow from Financing Activities
1,000,000.00
Net Increase/(Decrease) in cash
Cash balance at the beginning of the period
721,300.00
721,300.00
STATEMENT OF
T. Cayanan, Capital, Beginning
Initial Investments
Withdrawals
Net Income
T. Cayanan, Capital, Ending
CHANGES IN OWNER’S EQUITY
1,000,000.00
170,400.00
1,170,400.00