Fabm1 Las 4thq

SDO ALBAY
LAS DEVELOPMENT TEAM

FOR FUNDAMENTALS OF A.B.M 1
NORMA B. SAMANTELA, CESO VI Schools Division Superintendent
MA. JEANY T. ABAYON, Ed.D Assistant Schools Division Superintendent
FATIMA D. BUEN, CESO VI Assistant Schools Division Superintendent
DIVISION EVALUATION TEAM
CID Chief, Sancita B. Peñarubia

PSDS/Division Mathematics Coordinator, Chairperson, TWG Felma A. Bonito
FUNDAMENTALS OF ABM 1 LAS TEAM FOR QUARTER 4 WRITERS:
May Sarcia Arnoza Edna B. Lositano
Leah N. Dalisay- Amora Hazel R. Veloso
Jennivic L. Mangampo Cherry B. Lantican
Efren N. Nocete Ma. Ceazare D. Barnuevo
Teresita O. Mandac Chairmaine M. Oraye
Maribel N. Veluz Ross Alden A. Bigtas
Lourdes M. Bataller Cynthia L. Abiera
TEAM LEADER : Cynthia L. Abiera

CONTENT EDITOR : Eduardo L. Llanera Jr.
LANGUAGE EDITOR : Julius A. Martillana
Nathan Ted O. Mandac
COVER LAYOUT ARTIST : Allan S. Lomenario Jr.
TECHNICAL SUPPORT : Mecyel M. Endrano
CONTENT
Week No. Learning Competencies Page No.
Prepares adjusting entries of service type of business

1 1
ABM_FABM11-Iva-d-33
Complete the accounting cycle of service type of

2 14
business ABM_FABM11-Iva-d-34
Describes the nature of transactions in a merchandising

3 41
business ABM_FABM11-ive-j-35
Records transactions of a merchandising business in the

4 63
general and special journals ABM_FABM11- ive-j-36
Post transactions in the general and subsidiary ledgers

5 80
ABM_FABM11- ive-j -37
6 Prepares a trial balance ABM_FABM11- ive-j -38 98
Prepares adjusting entries and worksheets

7 109
ABM_FABM11- ive-j -39
Completes the accounting cycle of a merchandising

8 126
business ABM_FABM11- ive-j -40
Prepares the Statement of Cost of Goods Sold and

9 161
Gross Profit ABM_FABM11- ive-j -41
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1
Name: ________________________________ Grade Level: _________________

Strand and Section: _____________________ Date: _______________________
LEARNING ACTIVITY SHEET Q4-Week 1

Adjusting Entry
BACKGROUND INFORMATION FOR LEARNERS

Accounting information is valued when it is communicated early enough to be used for
economic decision-making. To provide timely information, accountants have divided the economic life of
a business into artificial time periods. This assumption is referred to as the periodicity concept.
Accounting period is generally a month, a quarter, or a year. The most basic accounting period is
one year. Entities differ in their choice of the accounting year. A fiscal year is a period of any twelve
consecutive months. A calendar year is an annual period that ends on December 31. A natural business
year is a 12 month-period that ends when business activities are at their lowest level of the annual cycle.
A period of less than a year is an interim period. Some even adopt an annual reporting of 52 weeks.
The periodicity concept ensures that accounting information is reported at regular intervals.
The Need for Adjustments

Adjusting entries assign revenues to the period in which they are earned, and expenses to the
period in which they are incurred. These entries are needed to measure properly the profit for the period,
and to bring related asset and liability accounts to correct balances for the financial statements. Adjusting
entries involve changing account balance at the end of the period from what is current balance of the
account to what is the correct balance for proper financial reporting. Without adjusting entries in the
balance sheet and probability in the income statement.
Prepaid Expense
These Expenses are paid before they are incurred. Most of the prepaid expenses are expenses
incurred every month.
Prepaid Rent
On May 1, Montero’s Wedding Consultancy paid P8000 for two months’ rent in advance.
Dr Cr
Prepaid Rent 4000
Cash 4000
By May 31, one-half of the asset has expired, and should be treated as an expense.
This transaction is analyzed, and the adjustment is recorded as follows:
Dr Cr
Rent Expense 4000
Prepaid Rent 4000
After adjustments, the prepaid rent account has a balance of P4000 ( May 1 prepayment of P8000)
less the 4,000 expired portion), the rent expense account reflects the 4,000 expense for the month.
Note: See Exhibit 1
1
Prepaid Insurance
Montero’s Wedding Consultancy acquired a one-year comprehensive insurance coverage on

the service vehicle and paid P14400 premiums on May 4.
Dr Cr
Prepaid Insurance 4000
Cash 4000
By May 31, one month of the insurance has expired, and should be treated as an expense.
Entries: Decreases in owner’s equity is recorded by a debit to insurance
expense. Decrease in assets as a credit to prepaid insurance.
Dr Cr
Insurance Expense 1,200
The GeneralPrepaid
JournalInsurance Prepaid
Unearned1,200
End of the period- expenses Payables
Expenses
adjusting entries
The prepaid insurance account has a balance of P13,200 (May 4 prepayment of P14,400 less P1,200)
recorded
and insurance in the reflects
expense Generalthe expired cost of P1,200 for the month. As a matter of company policy,
Journal
the period May 4 to 31 is considered a month.
Note: See Exhibit 1
Supplies
On May 8, Montero’s Wedding Consultancy purchased supplies, P18,000 on account.

Dr Cr
Supplies 18, 000
Accounts Payable 18,000
After the inventory count showed the supplies costing P15,000 are still on hand.
Transaction: Consumption of supplies.
Entries: Decreases in owner’s equity is recorded by a debit to supplies
expense. Decrease in assets as a credit to supplies.
Dr Cr
Supplies Expense 3, 000
Supplies 3,000
The asset account supplies now reflect the adjusted amount of P15,000 (P18,000 less P 3,000). In
addition of supplies expensed during the accounting period is reflected as P3,000.
Note: See Exhibit 1
Depreciation of Property and Equipment

An entity acquires long-lived such as buildings, service vehicles, computers or office furniture that
help generate income from entity. Therefore, a portion of the cost of the assets should be reported as
expense in each accounting period. The estimated amount allocated to anyone accounting period is called
depreciation or depreciation expense. These factors are involved in computing depreciation expense. (1)
asset cost is the amount an entity paid to acquire the depreciable asset. (2) Estimated salvage value is the
amount that the asset can probably be sold for the end of its estimated useful life. (3) Estimated useful
2
life is the estimated number of periods that an entity can use the asset. Useful life is an estimate, not
an exact measurement.
This simplest procedure is called straight-line method.

The useful life of an asset is an
accounting estimate of the number
of years it is likely to remain in
Salvage value is the book value of an
service for the purpose of cost-
asset after all depreciation has been
effective revenue generation.
fully expensed.
Asset cost - Estimated salvage value

Depreciation Expense =
Estimated useful life
The asset account is not directly reduced when recording depreciation expense. Instead, the
reduction is recorded in a contra account called accumulated depreciation. A contra account is used to
record reduction in a related account. Use of the contra-account-accumulated depreciation- allows the
disclosure of the original cost of the related asset in the balance sheet. The balance of the contra account
is deducted from the cost to obtain the book value of the property and equipment
Services vehicle and Office Equipment.
The Montero’s Wedding Consultancy bought a service vehicle for P420,000 on May 4,
the office equipment acquired for P60,000 was acquired on May 5.
Dr Cr
Service Vehicle 420, 000
Cash 420,000
Office Equipment 60, 000
Cash 60,000
By May 31, the service vehicle and office equipment has depreciated. The service vehicle
will last for seven years (eighty-four months) and with a salvage value of P84,000. The office
equipment acquired will have a useful life of five years (sixty months) and will be worthless at that
time.
Dr Cr
Depreciation Expense-Service Vehicle 4, 000
Accumulated Depreciation-service Vehicle 4,000
Depreciation Expense-Office Equipment 1, 000
These amounts represent the cost allocated to the
Accumulated Depreciation- Office Equipment month, thus reducing
1,000asset accounts, and
increasing the expense account.
Note: See Exhibit 1
3
Unearned Revenues
There are times that an entity receives cash for services or goods even before service is rendered
or goods are delivered. When such is received in advance, the entity has an obligation to perform services
or deliver goods. The liability referred to is unearned revenues.
Unearned referral Revenues
On May 15, Montero’s Wedding Consultancy is earning additional revenues by referring

consulting clients to friendly hotels and caterers. Received P10,000.00 advance fees for the three
clients referred.
Dr Cr
Cash 10,000
Unearned Referral Revenues 4,000
By the end of the month, one of the three couples referred had already taken their marriage
vows as a result the amount of P4,000 pertaining to the referred event has been realized.
Dr Cr
Unearned Referral Revenues 4,000
Referral Revenues 4,000
Note: See Exhibit 1
Accrued Expenses
An entity often incurs expenses before paying for them. Salaries, interest, utilities (e.g. electricity,
telecommunications, water and taxes are examples of expenses that are incurred before payment is
made.
Accrued Interest
On May 2, the owner borrowed P210,000 from Metrobank. He issued a promissory note
that carried a 20% interest per annum. Both the interest and principal will be payable in one
year.
Dr Cr
Cash 210,000
Notes Payables 210,000
By May 31, the interest to be accrued is P3,500.

Dr Cr
interest Expense 3, 500
Interest Payables 3,500
Note: See Exhibit 1
4
Accrued Consulting Revenues
Suppose the entity agreed to arrange a rush but simple civil weeding for a madly-in-love
couple in the afternoon of May #1. The entity intended to charge fees of P5,300 for the services, which
is earned but unbilled. Dr Cr
Account Receivables 5,300

Consulting Revenues 5,300
A total of 67,700 in consulting revenue was earned and 17,300 in account receivables for the
month.
Note: See Exhibit 1
Accrued Salaries
May 2- Hired an office assistant and account executive, each with a P7,800.00 monthly
salary or each is to receive P300.00 per day for the 26-day work month.
May 13- Paid salaries P6,600.00. the entity pays salaries every two Saturdays.
May 27- Paid salaries P7,200.00.
Dr Cr
May 13 Salary Expense 6, 600
Cash 6,600
May 27 Salary Expense 7, 200
Cash 7,200
Each of the employee salary rate is P7,800 or P300 per day (P7,800/26 working days). The
expense to be accrued is P1,800 (P300 x 3 days x 2 employees).
By May 31, the expense to be accrued is P1,800.

This accrued expense is analyzed, and the adjustment is recorded as follows:
Dr Cr
Salary Expense 1, 800
Salary Payables 1,800
The salary of P1,800 is now recorded in the salaries payable account. Th actual expense incurred
for salaries during the month is P15,600.
Note: See Exhibit 1
Accrued Revenues
An entity may provide services during the period that are neither paid for by the clients nor billed
at the end of the period. The value of these services represents revenue earned by the entity. Any revenue
that has been earned but not recorded during the accounting period calls for an adjusting entry for debit
as asset account and credits an income account.
5
Accrued Consulting Revenues
Suppose the entity agreed to arrange a rush but simple civil weeding for a madly-in-love
couple in the afternoon of May #1. The entity intended to charge fees of P5,3000 for the services,
which is earned but unbilled.
Dr Cr
Account Receivables 5,300
Consulting Revenues 5,300
A total of 67,700 in consulting revenue was earned and 17,300 in account receivables for the
month.
Note: See Exhibit 1
Bad Debt
Some purchased goods or availed services on credit will never be collected. Hence, there is a need
to reflect these as charges against income. Estimates of uncollectible accounts may be based on credit
sale for the period or on the accounts receivable balance. The most common method of estimating bad
debts is by multiplying the number of accounts receivable by a certain percentage, which is determined
through the years of experience of the entity in business.
Bad debt
Assume that the entity made credit sales of p1,100,000 during the year and prior experience
indicates that expected 1%average uncollectible rate based on credit sale. The contra-account
Allowance for uncollectible Accounts has accredit balance as a deduction from Account Receivable.
The allowance account needs to be Increased by P11,000 (P1,100,000 x 1%) because account
receivable in that amount is doubtful of collection. The adjustment will be:
Dr Cr
Bad Debts Expense 11, 000
Allowance for Doubtful Accounts 11,000
No entry is made to uncollectible account Expense, since the adjusting entry has already provided
for an estimated based on previous experience for all receivables.
Throughout the accounting period, when there is a positive evidence that a specific account is
definitely uncollectible, the appropriate amount is written off against the contra account. For example,
if P1500 receivable were considered uncollectible, the amount would be written off as follow:
Dr Cr
Allowance for Doubtful Accounts 11, 000
Accounts Receivables 11,000
6
ALTERNATIVE METHODS OF RECORDING DEFERRALS
A prepaid expense is initially recorded in a prepaid asset. Likewise, revenue received in advance
is initially recorded in liability account-unearned revenues. In the case of a prepaid expense, an adjusting
entry is made at the end of the period to transfer the portion of the expired asset to an expense account.
Similarly, an adjusting entry is made to transfer earned revenues from the liability account to an income
account. However, if they are recorded as an expense and as a revenue, here are the alternative
approaches to prepaid expense and unearned revenue.
PREPAID EXPENSE
On Oct. 1, 2011, Calaguas Company acquired a 3-year insurance policy for P36,000
paid in advance.
Calaguas Company may record this transaction depending on which of the two
accounting policies it follows. The P36,000 payment may initially be recorded either as an
asset or as an expense.
1. Initial entry is recorded as an asset Dr Cr

Oct. 11 Prepaid Insurance 36,000
Cash 36,000
2. Initial entry is recorded as an expense

Oct. 11 Insurance Expense 36,000
Cash 36,000
On Dec. 31, 2011, three months’ insurance has been consumed, or insurance expense is equal to
P3,000 (P36,000/36 months x 3 months).
Prepaid insurance equivalent to P33,000 (P36,000 – P3,000) remain. The appropriate adjustment
depends on how the initial transaction was recorded.
1. Adjusting entry required if initial entry is recorded as an asset

Dr Cr
Dec. 31 Insurance Expense 3,000
Prepaid Insurance 3,000
2. Adjusting entry required if initial entry is recorded as an expense

Dr Cr
Dec. 31 Prepaid Insurance 33,000
7
Unearned Revenues
On July 1, 2011, Marasigan Company received a P48,000 check for 2 years’ rent paid in
advance. On this date, Marasigan may record a credit in that amount either as unearned rental
revenue or rental revenue, depending on its accounting policy.
1. Initial is recorded as a liability
2011
July 1 Cash 48,000
Unearned Rent Revenues (L) 48,000
2. Initial is recorded as a revenue
2011
July 1 Cash 48,000
Rent Revenues 48,000
On Dec. 31, 2011, six months’ rent has been earned, or rent revenue is equal to
P12,000 (P48,000/24 months x 6 months). Unearned rent revenues equivalent to P36,000
(P48,000 – P12,000) remain. The appropriate adjustment depends on how the initial
transaction was recorded.
Adjusting entry required if initial entry is recorded as:
1. A liability
Dec. 31 Unearned Rent Revenues 12,000
Rent Revenues 12,000
2. A revenue
Dec. 31 Rent Revenues 36,000
Unearned Rent Revenues 36,000
Preparing the adjusted trial balance

1. Enter the account balances in the unadjusted trial balance columns and the total amounts.
2. Enter the adjusting entries in the adjustment columns and the total amounts.
3. Compute each account’s adjusted balance by combining the unadjusted trial balance and the
adjustment figures. Enter the adjusted amounts in the adjusted trial balance columns.
• Add when the type of adjustment (debit or credit) is the same as the unadjusted
balance.
• Subtract when the type of adjustment (debit or credit) is different from the unadjusted
balance.
Assume that this is the trial balance of the Montero’s Wedding Consultancy and the adjustment
(the adjustments discussed earlier) has made to derive in adjusted trial balance.
8
Montero’s Wedding Consultancy
Trial Balance
As of May 31, 2020
ACCOUNTS UNADJUSTED TRIAL ADJUSTMENTS ADJUSTED TRIAL
BALANCE BALANCE
Debit Credit Debit Credit Debit Credit
Cash Php 22,600 22,600

Accounts Receivable 12,000 5,300 17,300
Supplies 18,000 3,000 15,000
Prepaid Rent 8,000 4,000 4,000
Prepaid Insurance 14,000 1,200 12,800
Service Vehicle 420,000 420,000
Office Equipment 60,000 60,000
Accumulated 4,000 4,000
Depreciation, Vehicle
Accumulated 1,000 1,000
Depreciation, Office
Equipment
Notes Payable 210,000 210,000
Accounts Payable 53,000 53,000
Unearned Income 10,000 4,000 6,000
Interest Payable 3,500 3,500
Utilities Payable 1,400 1,400
Salaries Payable 1,800 1,800
Montero, Capital 250,000 250,000
Montero, Drawings 14,000 14,000
Income Summary
Consulting Revenue 62,400 5,300 67,700
Referral Revenue 4,000 4,000
Salaries Expense 13,800 1,800 15,600
Utilities Expense 4,400 4,400
Rent Expense 4,000 4,000
Insurance Expense 1,200 1,200
Supplies Expense 3,000 3,000
Interest Expense 3,500 3,500
Depreciation 4,000 4,000
Expense, Vehicle
Depreciation 1,000 1,000
Expense, Office
Equipment
TOTALS Php586,800.00 586,800.00 27,800 27,800 602,400.00 602,400.00
Exhibit 1: Adjusted Trial Balance

9
The adjustments pertinent to the Montero’s Wedding Consultancy as illustrated below.
ADJUSTING ENTRIES
Date Account Title and Explanation Ref Debit Credit

1.
December 31 Rent Expense P4,000.00
Prepaid Rent P4,000.00
2. 31 Insurance Expense 1200.00
Prepaid Insurance 1200.00
3. 31 Supplies Expense 3,000.00
Supplies 3,000.00
4. 31 Depreciation expense-Service Vehicle 4,000.00
Accumulated Depreciation-Service Vehicle 4,000.00
31 Depreciation expense- office equipment 1,200.00
Accumulated Depreciation-office equipment 1,200.00
5. Unearned referral revenues 460.00
Referral Revenues 460.00
6. Salaries Expense 1,800.00
Salaries Payable 1,800.00
LEARNING COMPETENCY
Prepares adjusting entries: ABM_FABM11-IVa-d -33
ACTIVITIES:
Activity 1
TELL ME THE TRUTH
Modified TRUE or FALSE
Direction: Put a check if the statement is TRUE and if notchange the underlined word or phrase to make the
whole statement true.
________________1. A fiscal year must begin on January 1.

________________2. The result In recording the adjusting entries for depreciation, both accounts
depreciation expense and accumulated depreciation increase.
________________3. As equipment is depreciated, both the book value and the accumulated depreciation
increases.
________________4. The adjusting entry to allocate part of a one-year fire insurance policy to expense will
cause total assets to increase.
________________5. Recording incurred but unpaid expenses is an example of an accrual.
10
Activity 2
“SUPPLY ME”
Direction: Prepare the adjusting entries for the following transactions by supplying the missing
information in the given data below.
1. At year end, unrecorded interest expense due to creditors was P4,000 (payable in the
next year). Prepare the adjusting entry at year end (December 31).
2. Prepaid Insurance account began the year with a balance of P230. During the year,
insurance in the amount of P570 was purchased. At the end of the year March 31st, 2009
the amount of insurance still unexpired was P350. Prepare the year end adjusting entry.
3. Wages are paid every Saturday for a six-day work week. Wages are P 2,400 per week.
Prepare the adjusting entry on June 30, assuming July 1 falls on a Wednesday.
4. On July 3, a deposit in the amount of P5,000 was received for services to be performed.
By the end of the month, services in the amount of P1,200 were performed. Prepare
journal entries for the original receipt of the deposit and the adjusting entry on 31st July.
5. The Supplies asset account began the year with a balance of P190. During the year,
supplies in the amount of P490 were purchased. At the end of the year the inventory of
supplies on hand was P220. Prepare the year end adjusting entry:
Date Account Title and Ref Debit Credit

Explanation
1. Dec 31, 2009 ________________ P4,000.00
Interest Payable P4,000.00
2. March 31, 2009 Insurance Expense P450.00
______________ P450.00
3. June 30 Wages Expense P_________
Wages Payable P________
4. July 3 Cash P5,000.00
____________ P5,000.00
July 31 _________ P1,200.00
Revenue P1,200.00
5. ______________ P460.00
Supplies P460.00
Activity 3: “SCAVENGER HUNT”
Direction: Compute the following cases and supply the needed adjusting entries if needed.
1. Luke Ramos purchased a delivery van on January 1, 2020 amounting to Php 250,000. It is
estimated that the vehicle will be useful for 10 years. The vehicle can be sold for P10,000
at the end of its useful life. If the accounting period being reported by Luke is one year
from Jan – Dec 2020, how much is the depreciation expense?
11
2. On December 1, XYZ Servicing Company received P2,400 for the annual insurance premium
covering the twelve-month period beginning on December 1. XYZ Servicing recorded the P2,400
receipt as of December 1 with a debit to the current asset Cash and a credit to the current
liability Unearned Revenues. XYZ Servicing prepares monthly financial statements at the end of
each calendar month. What are the adjusting entries?
3-4. Gray Electronic Repair Services estimates that P100.00 of its credit revenue for the period will not
be collected.
3. What would be the entry at the end of the period?
4. If the company's Accounts Receivable amounts to P3,400 and its Allowance for Bad Debts is P100,
then what would be the balance of Accounts Receivable to be presented in the balance sheet?
5. A company borrowed P100,000 on December 1 by signing a six-month note that specifies interest
at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note
matures on May 31. The company prepares financial statements at the end of each calendar
month.
REFLECTION: “MY REVENUE”

Record and explain your most eye-opening revelation or biggest question in preparing
adjusting entries.
REFERENCES FOR LEARNERS:
Textbooks:
• Ballada, W., 2011. Basic Accounting. 16th Edition. DomDane Publishers. Pp 221-236.
• Hermanson,R.H., Edwards, J.D. and Maher, M.W., 2011. Accounting Principles: A Business
Perspective.pp15-19.
Online Resources/URL:
• https://www.accountingcoach.com/adjusting-entries/explanation/4
• https://www.freshbooks.com/hub/accounting/calculate-depreciation
• https://www.accountancyknowledge.com/depreciation-problems-and-solutions/
• https://www.accountingverse.com/accounting-basics/bad-debts-expense.html
• https://www.investopedia.com/terms/u/usefullife.asp
Writers
LEAH N. DALISAY-AMORA
MAY SARCIA ARNOZA
Polangui General Comprehensive High School
12
13
ANSWER KEY
Activity 1-TELL ME THE THRUTH
1. Calendar Year 2. √
3. Book value decrease or only accumulated depreciation increases 4. Decreases
5. √
Activity 2- LET’S FIT IN
1. Dec 31, 2009 Interest Expense P4,000.00
Interest Payable P4,000.00
2. March 31, 2009 Insurance Expense P450.00
Prepaid Insurance P450.00
3. Wages Expense P800.00
Wages Payable P800.00
4. July 3 Cash P5,000.00
Unearned Revenue P5,000.00
July 31 Unearned Revenue P1,200.00
Revenue P1,200.00
5. Supplies Expense P460.00
Supplies P460.00
Activity 3: SCAVENGER HUNT
1. Annual Depreciation= (Acquisition Cost – Salvage Value) / Useful life
Annual Depreciation= (250,000- 10,000)/ 10
Annual Depreciation = Php 24,000
2. P2,400/12 months of coverage= P200 per month
As of December 31, one month has gone by, so one month of insurance has been earned and belongs in
revenue. ( This means that the Unearned revenues account should have a balance of P2,200- 11 months
still unearned X P200 per month)
Adjusting Entries:
Dr Cr
Dec 31 Unearned Revenue P200.00
Service Revenue P200.00
3. Dec 31 Bad Debts Expense P100.00
Allowance for Bad Debts P100.00
4. Accounts Receivable (Gross Amount) P3,400
Less: Allowance for Bad Debts 100
Accounts Receivable - Net Realizable Value P3,300
5. Computation:
12% per year is 1% per month X P100,000 = P1,000 per month
Another method: Principal X Rate X Time= P100,000 X 012 X 1/12 = P1,000
As of December 31, the company owes just one month of interest. When the note becomes due, the
company will have to remit six months of interest for a total of P6,000 (P100,000 X .12 X 6/12).
Entries: Dec 31 Interest Expense P1,000
Interest Payable P1,000
Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4-WEEK 2

COMPLETING THE ACCOUNTING CYCLE
Background Information for Learners:
The accounting cycle is a series of steps that businesses take to track transactions and
consolidate financial information over a specific accounting period (month, quarter, and year).
The result of the accounting cycle is the production of accurate financial statements for that
period and preparedness for the next accounting period. We will examine the steps involved
in the accounting cycle, which are: (1) identifying transactions, (2) recording transactions, (3)
posting journal entries to the general ledger, (4) creating an unadjusted trial balance, (5)
preparing adjusting entries, (6) creating an adjusted trial balance, (7) preparing financial
statements, (8) preparing closing entries, and (9) preparing the post-closing trial balance.
Identify and
Analyze
Transactions
Preparation of
Post-Closing Journalizing
Trial Balance
Closing
Entries
The Posting
Accounting
Preparation of
Cycle
Preparation of
Financial
Trial Balance
Statements
Preparation of
Adjusting
Adjusted Trial
Entries
Balance
14
Let's have a quick review of the steps in the accounting cycle that you have learned in your previous
lessons.
IDENTIFY TRANSACTIONS
Transactions involve buying or selling
something and can be defined as ‘the act of
conducting business.’ This could involve the
exchange or transfer of goods, services, or funds.
When a transaction occurs, it is recorded in the
company’s accounting system, in the form of
a journal entry. However, the transaction must
first be identified; for example, if a company
purchases machinery, they must add a new asset
to the accounting equation. Failing to identify
transactions would cause the subsequent steps in
the accounting cycle to be inaccurate. Therefore,
all transactions must be identified and analyzed or
else we will have a flawed financial reporting
process. Each new transaction changes a
company’s financial condition and impacts certain
asset, liability, and/or equity accounts. The
accounting equation will always hold true – if it
does not, there is a problem. Properly recorded
transactions will keep the accounting equation
balanced. Therefore, it is important to not just
identify, but also analyze transactions and record them
accurately.
RECORD TRANSACTIONS
Transactions are first recorded in an
accounting system in the form of journal
entries. Each transaction must be listed in the
appropriate journal and maintained in the
order that they occurred. Each journal entry
consists of the following information: (1) the
account(s) and amount(s) to be debited, (2)
the account(s) and amount(s) to be credited,
(3) the date of the transaction, and (4) an
explanation of the transaction. Each
transaction has a debit and a credit entry, is
listed in chronological order, and includes a
brief description of the transaction itself. Now
that each transaction has been properly
recorded in the general journal, we are ready
to post the journal entries to the general ledger.
15
POST JOURNAL ENTRIES TO LEDGER
ACCOUNTS
The general ledger is used to create a
company’s financial statements. Once a
transaction has been journalized, it is eventually
posted (or transferred) to the general ledger.
Having a complete listing of transactions in the
general ledger will allow us to create the
unadjusted trial balance and continue with the
steps in the accounting cycle. The following
example will demonstrate how we post journal
entries from the previous step to the general
ledger.
PREPARE UNADJUSTED TRIAL BALANCE

At the end of an accounting
period, an unadjusted trial balance is
created to verify that the total debit
entries equal the total credit entries. The
unadjusted trial balance is a list of
accounts and their balances before any
adjusting entries are made to create the
financial statements. We will create the
unadjusted trial balance by simply
entering the ending balances in the ledger
accounts from the previous step and
adding up the debits and credits to see if
they balance.
PREPARE ADJUSTING ENTRIES

Adjusting entries are made at
the end of an accounting period (year,
quarter, month). These entries alter the
final balances of certain ledger accounts
to reflect the revenues earned and
expenses incurred during an accounting
period. This ensures that we comply with
the accrual concept of accounting.
16
PREPARE AN ADJUSTED TRIAL
BALANCE
After adjusting entries have
been made, companies prepare an
adjusted trial balance. The adjusted
trial balance shows the balance of all
accounts and includes the adjustments
made at the end of the accounting
period. In the following example, we will
apply the adjusting entries made in the
prior step to our unadjusted trial
balance.
PREPARE FINANCIAL STATEMENTS

Financial statements can be
prepared from the adjusted trial balance.
Financial statements provide reporting on a
company’s financial results, financial
condition, and cash flows.
The financial statements are the means by which the information accumulated and processed
in financial accounting is communicated to the users. Without accounting information embodied in
the financial statements, users may not be able to arrive at sound economic decisions. The main
objective of financial statements is to provide financial information about the reporting entity’s assets,
liabilities, equity, income, and expenses that is useful to users of financial statements in assessing the
prospects for future net cash inflows to the reporting entity and in assessing management’s
stewardship of the entity’s economic resources.
Statement of Financial Performance (Income Statement)- presents the

summary of the revenues and expenses of an entity for a specific period.
Statement of Financial Position (Balance Sheet)- lists all the assets,

liabilities, and equity of an entity at a specific period.
17
Statement of Changes in Equity – is a reconciliation of the beginning and
ending balances in a company’s equity during a reporting period.
Cash Flow Statement - presents the financial statement that summarizes

the amount of cash and cash equivalents entering and leaving a company.
Notes to Financial Statement-disclose the detailed assumptions made by

accountants when preparing a company's: income statement, balance
sheet, statement of changes of financial position or statement of retained earnings.
Below is the Financial Statements of Montero’s Wedding Consultancy.
MONTERO'S WEDDING CONSULTANCY

Income Statement
For the period Ended May 31,2020
Consulting Revenue 67,700.00
Referral Revenue 4,000.00
Less: Operating Expenses
Salaries Expense 15,600.00
Utilities Expense 4,400.00
Rent Expense 4,000.00
Insurance Expense 1,200.00
Supplies Expense 3,000.00
Interest Expense 3,500.00
Depreciation Expense – Vehicle 4,000.00
Depreciation Expense - Office Equipment 1,000.00
36,700.00
Net Profit 35,000.00
18
Statement of Financial Position
As of May 31,2020
Assets
Current:
Cash 22,600.00
Accounts Receivable 17,300.00
Supplies 15,000.00
Prepaid Rent 4,000.00
Prepaid Insurance 12,800.00
Total Current Assets 71,700.00
Properties and Equipment:
420,000.0
Service Vehicle
0
Less: Accumulated Depreciation 4,000.00 416,000.00
Office Equipment 60,000.00
Less: Accumulated Depreciation 1,000.00 59,000.00
Total Assets 546,700.00
Liabilities
Accounts Payable 53,000.00
Notes Payable 210,000.00
Unearned Income 6,000.00
Interest Payable 3,500.00
Utilities Payable 1,400.00
Total Liabilities 275,700.00
Owner's Equity
Montero Capital 250,000.00
Less: Montero Drawing 14,000.00
Net Capital 236,000.00
Add: Net Profit 35,000.00
Total Capital 271,000.00
Total Liabilities & Owners Equity 546,700.00

Statement of Changes in Equity
As of May 31,2020
Montero Capital - beginning 250,000.00

Montero Capital - ending 271,000.00
19
Cash flow Statement
As of May 31,2020
Cash flow from Operating Activities

Cash received from customers 17,300.00
Cash paid for expenses (25,000.00)
Cash paid to suppliers (15,000.00)
Net Cash flow from Operating Activities (22,700.00)
Cash flow from Investing Activities
Cash paid to acquire equipment (480,000.00)
Net Cash flow from Investing Activities (480,000.00)
Cash flow from Financing Activities
Cash received from investment of owner 250,000.00
Cash received from bank 210,000.00
Cash paid to owner- drawing (14,000.00)
Net Cash flow from Financing Activities 446,000.00
Net Increase (Decrease) in Cash (56,700.00)
Cash Balance, Beginning 79, 300.00
Cash Balance, Ending 22, 600.00

Notes to Financial Statements
Year Ended May 31, 2020
Montero’s Wedding Consultancy is a full-service company that provides complete

consulting services for weddings, holy unions and anniversaries. Our consultants are
experienced and dedicated professionals with many years of event planning experience. MWC
is unique in that we give our clients our undivided attention. We listen to their needs and work
with them to create the event of their dreams. Our clients’ wishes become our commands.
Accounting Policies
The financial statements include the accounts of Montero’s Wedding Consultancy and
our wholly owned subsidiaries, and have been prepared in accordance with generally
accepted accounting principles (“GAAP”) and the requirements of the Securities and Exchange
Commission (“SEC”) for interim reporting.
20
Service Business Analysis
The wedding services market is fragmented with the overwhelming majority of the
incumbents offering only a limited line of services. There are numerous florists, hair stylists,
and caterers to choose from. However, there are almost no companies that will provide the
full range of services associated with the wedding planning and execution.
Personnel Plan
Initially, Montero’s Wedding Consultants’ personnel will include only the two owners,
both of whom will be working full time. As the personnel plan shows, we expect to hire an
additional wedding consultant in the next year this person will work full time, but will not be
included in the management decisions.
PREPARE CLOSING ENTRIES

In the closing phase of the
accounting cycle, the balances of
temporary accounts are brought to
zero to prepare for the next
accounting period. In this step,
temporary accounts are essentially
‘emptied out’ into permanent
accounts.
Income, expense, and withdrawal accounts are temporary accounts that accumulate
information related to a specific accounting period. At the end of each accounting period
(year), the balances of these temporary accounts are transferred to the capital account.
Using the adjusted trial balance of Montero’s Wedding Consultancy (as discussed on
the previous activity) we can now have the following closing entries.
Closing Entries
Date Explanation Debit Credit
2020
May 31 Consulting Revenue 67,700.00
Income Summary 67,700.00
May 31 Referral Revenue 4,000.00

Income Summary 4,000.00
21
May 31 Income Summary 36,700.00
Salaries Expense 15,600.00
Utilities Expense 4,400.00

Rent Expense 4,000.00
Insurance Expense 1,200.00

Supplies Expense 3,000.00
Interest Expense 3,500.00
Depreciation Expense - Vehicle 4,000.00

Dep. Expense - Office Equipt. 1,000.00
May 31 Income Summary 35,000.00

31
May Montero Capital 14,000.00
Montero Drawings 14,000.00
PREPARE A POST-CLOSING TRIAL

BALANCE
The post-closing trial balance eliminates
all temporary accounts and leaves only
real (or ‘permanent’) accounts. This
balances allows us to check our work and
determine that we journalized and
posted the closing entries properly.
22
Post- Closing Trial Balance
May 31,2020
Accounts Debit Credit
Cash
22,600.00
Accounts Receivable
17,300.00
Supplies
15,000.00
Prepaid Rent 4,000.00
Prepaid Insurance
12,800.00
Service Vehicle 420,000.00
Office Equipment
60,000.00
Accumulated Depreciation 5,000.00
Accounts Payable 53,000.00
Notes Payable 210,000.00
Unearned Income 6,000.00
Interest Payable 3,500.00
Utilities Payable 1,400.00
551,700.00 551,700.00
Consulting Revenue
Date Particular Debit Credit Balance

May 31 Revenue 67,700.00 67,000.00
67,000.00 0.00
Referral Revenue

May 31 Revenue 4,000.00 4,000.00
4,000.00 0.00
Salaries Expense
May 31 employees 15,600.00 15,600.00

15,600.00 0.00
23
Utilities Expense
May 31 expenses 4,400.00 4,400.00
4,400.00 0.00
Rent Expense
May 31 expenses 4,000.00 4,000.00
4,000.00 0.00
Insurance Expense

May 31 expenses 1,200.00 1,200.00
1,200.00 0.00
Supplies Expense
May 31 expenses 3,000.00 3,000.00

3,000.00 0.00
Interest Expense
May 31 expenses 3,500.00 3,500.00
3,500.00 0.00
Depreciation Expense - Vehicle

May 31 expenses 4,000.00 4,000.00
4,000.00 0.00
Depreciation Expense – Office Equipment

May 31 expenses 1,000.00 1,000.00
1,000.00 0.00
24
Montero’s Drawings
May 31 drawings 14,000.00 14,000.00

14,000.00 0.00
Montero’s Capital
250,000.0 250,000.0
May 31 Initial Investment 0 0
236,000.0
Drawings 14,000.00 0
35,000.00 271,000.0
Net Profit 0
Learning Competency with Code:
MELC: Complete the Accounting Cycle

CG Code: ABM_FABM11-IVa-d-34
ACTIVITY 1: YOU COMPLETE ME
Completing the Accounting Cycle- 100 points

Direction: Read and carefully analyze the transactions of LBM Stitches & Style Shop. Do what is
required, (Journal Entries, Posting, Trial Balance, Adjusting Journal Entries, Adjusted Trial Balance,
Income Statement (Single Step), Statement of Financial Position/ Balance Sheet (Report Form),
Statement of Changes in Equity, Cash Flow Statement, Notes to Financial Statements, Closing Entries
and Post- Closing Trial Balance). Use the appropriate form for each requirement.
Problem:
On December 1, 2020, L.B. Manuel opened the “LBM Stitches & Style Shop”, and during the
month, the following transactions were completed:
Dec. 1 - L.B. Manuel invested P80,000.00 cash in the business.

1 - He bought two sewing machines worth P30,000.00 each from Rufino
General Merchandise. Gave P15,000.00 as down payment and the balance is
payable within 60 days.
1 - Paid a three-month rental of the shop, P30,000.00. This was charged to
Prepaid Rent account.
1 - Paid a one-year insurance policy, P5,700.00 (use expense method)
25
3 - Bought sewing tools P5,900.00 and sewing supplies P2,700.00 from Virgilio
Trading on credit.
5 - Received P1,200.00 from a customer for a terno delivered.
7 - Billed to Luz Valdez, P5,000.00 for a two-pair of pants and polo barong
delivered.
10 - Purchased clothing materials from Legazpi Allied Enterprises and paid
P15,000.00
13 - Received P12,500.00 from various customers for pants and barong made
and delivered.
14 - Gave Rufino General Merchandise P15,000.00 and issued a 60-day, 6% note
for the balance.
15 - Paid the wages of the shop helper, P2,500.00
17 - L.B. Manuel withdrew P5,000.00 from the business for personal use.
18 - L. Valdez gave P2,000.00 as partial payment for his account.
20 - Received P14,750.00 from various customers for pants and shirts delivered.
22 - Paid the wages of the shop helper, P2,500.00
23 - Billed to Johnny Manahan P4,000.00 for barong and pants delivered to him.
27 - Paid the following monthly expenses: utility bill, P1,500.00; telephone bill,
P2,500.00
At the end of the month, the following data were gathered:
a. The sewing machines are estimated to have a 5-year useful life.
b. The actual count of sewing supplies revealed a balance of P1,700.00
c. The business is conservative to estimate a 5% of the receivables to be
uncollectable.
d. Balance of the clothing materials account is P7,000.00
Required:
Activity 1
1. Journal Entries
2. Posting
3. Trial Balance
4. Adjusting Journal Entries
5. Adjusted Trial Balance
Activity 2
6. Income Statement (Single Step)

7. Statement of Financial Position/ Balance Sheet (Report Form)
8. Statement of Changes in Equity
9. Cash flow Statement
10. Notes to Financial Statements
Activity 3
11. Closing Entries

12. Post- Closing Trial Balance
26
Use the Chart of Accounts below:
Chart of Accounts
Assets Owner’s Equity
111 Cash 311 L.B. Manuel, Capital
112 Accounts Receivable- Luz Valdez 312 L.B. Manuel, Drawing
113 Accounts Receivable- Johnny Manahan 313 Income and Expense Summary
113a Allowance for Bad Debts
114 Sewing Supplies
115 Clothing Materials Revenue
116 Prepaid Rent 411 Service Revenue
117 Prepaid Insurance
118 Sewing Tools
119 Sewing Equipment Expense
119a Accumulated Depreciation- Sewing Equipment 511 Wages
512 Utility Expense
513 Insurance Expense
Liabilities 514 Communication Expense
211 Accounts Payable- Virgilio Trading 515 Sewing Supplies Used
212 Accounts Payable- Rufino General Merchandise 516 Clothing Materials Used
213 Notes Payable 517 Rent Expense
214 Accrued Interest Expense 518 Interest Expense
519 Depreciation- Sewing Equipment
520 Bad Debts
Reflection:
“Life is like accounting; everything must be balanced.”

Using a short size bond paper, interpret the above statement through an illustration.
Rubrics:
Relevance - 40%
Creativity -25%
Originality -25%
Over-all Impact -10%
Total - 100%
References for Learners:

Arganda, A. Fundamentals of Accounting and Bookkeeping 1. Anvil Publishing Inc. 2016
Ballada, W. Fundamentals of Accountancy, Business, and Management 1. DomDane
Publishers. 2017
Ballada, W., Ballada, S. Accounting Fundamentals 4 Ed. DomDane Publishers. 2015
th
Banggawan, RB., Asuncion, DJ. Fundamentals of Accountancy, Business, and Management 1.

Real Excellence Publishing. 2017
27
ANSWER KEY:
ACTIVITY 1: YOU COMPLETE ME
1. Journal Entries
General Journal
Date Account Titles and Explanation F Debit Credit
2020
1 111 80,000
Dec. Cash
311 80,000
L.B. Manuel, Capital
to record the initial investment
1 119 60,000
Sewing Equipment
111 15,000
Cash
212 45,000
Accounts Payable
sewing machines bought payable w/in 60 days
1 116 30,000
Prepaid Rent
111 30,000
Cash
payment for rental
1 513 5,700
Insurance Expense
111 5,700
Cash
payment for Insurance Policy
3 118 5,900
Sewing Tool
114 2,700
Sewing Supplies
purchase on credit from Virgilio Trading
111
5 1,200
Cash
411
1,200
Service Revenue
cash received for delivered items
112
7 5,000
Accounts Receivable
411
5,000
Service Revenue
service rendered for L. Valdez on credit
10 115
15,000
Clothing materials
111
15,000
Cash
28
purchase of clothing materials
13 111
12,500
Cash
114
12,500
Service Revenue
cash received from various customers
14 212
45,000
Accounts Payable
111
15,000
Cash
213
30,000
Notes Payable
settlement of account due from Rufino General Mdse
15 511
2,500
Wages
111
2,500
Cash
paid the wages of the helper
17 312
5,000
L.B. Manuel, Drawing
111
5,000
Cash
drawing of the owner for personal use
18 111
2,000
Cash
112
2,000
Accounts receivable
partial payment of L. Valdez
20 111
14,750
Cash
114
14,750
Service Revenue
cash received from customers
22 511
2,500
Wages
111
2,500
Cash
paid the wages of the helper
23 113
4,000
Accounts receivable
411
4,000
Service Revenue
service rendered to J. Manahan on account
27 512
1,500
Utility Expense
514
2,500
Communication Expense
111
4,000
Cash
payment for utility and communication expenses
29
2. Posting
Cash Accnt. No. 111
Dec. 1 Initial investment 80,000.00 80,000.00

1 Sewing Equipment 15,000.00 65,000.00
1 Rental payment 30,000.00 35,000.00

1 Payment of Insurance 5,700.00 29,300.00
5 Service Revenue 1,200.00 30,500.00
10 Clothing Materials 15,000.00 15,500.00

13 Service Revenue 12,500.00 28,000.00
14 Payment to Rufino General 15,000.00 13,000.00
15 Wages 2,500.00 10,500.00

17 Drawing 5,000.00 5,500.00
18 Partial Payment of L.Valdez 2,000.00 7,500.00
20 Service Revenue 14,750.00 22,250.00

Wages 2,500.00 19,750.00
Utility & Communication 4,000.00 15,750.00
Accounts Receivable - L. Valdez Accnt. No. 112

Dec. 7 Service Revenue 5,000.00 5,000.00
18 Partial Payment 2,000.00 3,000.00
Accounts Receivable - J. Manahan Accnt. No. 113
Dec. 23 Service Revenue 4,000.00 4,000.00
Sewing Supplies Accnt. No.

114

Dec. 3 Supplies 2,700.00 2,700.00
30
Clothing Materials Accnt. No. 115

Dec. 10 Supplies 15,000.00 15,000.00
31 AJE 4 8,000.00 7,000.00
Prepaid Rent Accnt. No.

116

Dec. 1 Rental for 3 months 30,000.00 30,000.00
31 AJE 5 10,000.00 20,000.00
Prepaid Insurance Accnt. No. 117

Dec. 31 AJE 6 5,225.00 5,225.00
Sewing tools Accnt. No. 118

Dec. 31 AJE 6 5,900.00 5,900.00
Sewing Equipment Accnt. No. 119

Dec. 1 AJE 6 60,000.00 60,000.00
Allowance for Bad Debts Accnt. No. 113a

Dec. 31 AJE 2 350.00 350.00
Accumulated Depreciation-Sewing Equipment Accnt. No. 119a
Dec. 31 AJE 6 1,000.00 1,000.00
Accounts Payable- Rufino General Mdse. Accnt. No. 212
Dec. 1 Sewing Equipment purchase 45,000.00 45,000.00

14 AJE 4 45,000.00 00.00
31
23 Accounts Payable- Virgilio Trading 4,000.00 Accnt. No. 211
37,450.00
Date 31 Particular
CE1 Debit
37,450.00 Credit Balance
00.00
Dec. 3 Sewing tools & supplies 8,600.00 8,600.00
Notes Payable Accnt. No. 213

Dec. 14 Payment to Rufino 30,000.00 30,000.00
Accrued Interest Expense Accnt. No. 214

Dec. 31 AJE 7 75.00 75.00
L.B. Manuel, Capital Accnt. No.

311
Dec. 31 Initial Investment 80,000.000 80,000.00

2,550.00 82,550.00
L.B. Manuel, Drawing Accnt. No. 312

Dec. 17 CE4 5,000.00 5,000.00
31 CE3 2,550.00 7,550.00
Service Revenue Accnt. No. 411
Dec. 5 1,200.00 1,200.00

7 5,000.00 6,200.00
13 L. Valdez 12,500.00 18,700.00

20 14,750.00 33,450.00
23 4,000.00 37,450.00
31 CE1 37,450.00 00.00
32
Wages Accnt. No. 511
Dec. 15 First half of the month 2,500.00 2,500.00
22 Second half 2,500.00 5,000.00

31 CE2 5,000.00 00.00
Utility Expense Accnt. No. 512

Dec. 27 1,500.00 1,500.00
31 CE2 1,500.00 00.00
Insurance Expense Accnt. No. 513
Dec. 1 Policy for 1 year 5,700.00 5,700.00

31 AJE 6 5,225.00 475.00
31 CE2 475.00 00.00
Telephone and Communication Expense Accnt. No. 514

Dec. 27 j-2 2,500.00 2,500.00

31 CE2 2,500.00 00.00
Sewing Supplies Used Accnt. No. 515

Dec. 31 aje-2 1,000.00 1,000.00
31 CE2 1,000.00 00.00
33
Clothing Materials Used Accnt. No. 516
Dec. 31 aje-4 8,000.00 8,000.00
31 CE2 8,000.00 00.00
Rent Expense Accnt. No.

517
Dec. 31 aje-5 10,000.00 10,000.00

31 CE2 10,000.00 00.00
Depreciation- Sewing Equipment Accnt. No. 519

Dec. 31 aje-2 1,000.00 1,000.00
31 CE2 1,000.00 00.00
Bad Debts Accnt. No. 515

Dec. 31 aje- 350.00 350.00

31 CE2 350.00 00.00
Interest Expense Accnt. No. 518

Dec. 31 aje-7 80.00 80.00
31 CE2 80.00 00.00
3. Trial Balance
LBM Stitches & Style Shop

Unadjusted Trial Balance
December 31,2020
Cash ₱ 15,750.00
Accounts Receivable- L. Valdez ₱ 3,000.00
Accounts Receivable- J. Manahan ₱ 4,000.00
Sewing Supplies ₱ 2,700.00
34
Clothing Materials ₱ 15,000.00
Sewing Tools ₱ 5,900.00
Prepaid Rent ₱ 30,000.00
Sewing Equipment ₱ 60,000.00
Accounts Payable- Virgilio Trading ₱ 8,600.00
Notes Payable ₱ 30,000.00
L.B. Manuel, Capital ₱ 80,000.00
L.B. Manuel, Drawing ₱ 5,000.00
Service Revenue ₱ 37,450.00
Wages ₱ 5,000.00
Utility Expense ₱ 1,500.00
Insurance Expense ₱ 5,700.00
Communication Expense ₱ 2,500.00
₱ 156,050.00 ₱ 156,050.00
4. Adjusting Journal Entries

1.
Dec. 3
Depreciation- Sewing Equipment 1,000
1
Accumulated Depreciation- Sewing Equipment 1,000
2.
Dec. 3
Sewing Supplies used 1,000
1
Sewing Supplies 1,000
3.
Dec. 3
Bad Debts 350
1
Allowance for Bad Debts 350
4.
Dec. 3
Clothing Materials Used 8,000
1
Clothing Materials 8,000
5.
Dec. 3
Rent Expense 10,000
1
Prepaid Rent 10,000
6.
Dec. 3
1
7.
Dec. 3
Interest Expense 80
1
Accrued Interest Expense 80
35
5. Adjusted Trial Balance

Adjusted Trial Balance
December 31,2020
Cash ₱ 15,750.00
Accounts Receivable ₱ 7,000.00
Accounts Payable- Virgilio Trading ₱ 8,600.00
L.B. Manuel, Drawing ₱ 5,000.00
Service Revenue ₱ 37,450.00
Wages ₱ 5,000.00
Insurance Expense ₱ 475.00
Depreciation- Sewing Equipment ₱ 1,000.00
Accumulated Depreciation -Sewing Equipment ₱ 1,000.00
Sewing Supplies Used ₱ 1,000.00
Bad Debts ₱ 350.00
Allowance for Bad Debts ₱ 350.00
Clothing Materials Used ₱ 8,000.00
Rent Expense ₱ 10,000.00
Prepaid Insurance ₱ 5,225.00
Interest Expense ₱ 80.00
Accrued Interest Expense ₱ 80.00
₱ 157,480.00 ₱ 157,480.00
6. Income Statement (Single Step)

Income Statement
For the period Ended December 31,2020
Service Income ₱ 37,450.00
Less: Operating Expenses
Wages ₱ 5,000.00
Insurance Expense ₱ 475.00
Sewing Supplies Used ₱ 1,000.00
Clothing Materials Used ₱ 8,000.00
Rent Expense ₱ 10,000.00
Interest Expense ₱ 80.00
36
Depreciation- Sewing Equipment ₱ 1,000.00
Bad Debts ₱ 350.00 ₱ 29,905.00
Net Profit ₱ 7,545.00
7. Statement of Financial Position/ Balance Sheet (Report Form)

Statement of Financial Position
As of December 31,2020
Assets
Current:
Cash ₱ 15,750.00
Accounts Receivable ₱ 7,000.00
Less: Allowance for Bad Debts ₱ 350.00 ₱ 6,650.00
Prepaid Insurance ₱ 5,225.00
Total Current Assets ₱ 56,325.00
Properties and Equipment:
Less: Accumulated Depreciation ₱ 1,000.00 ₱ 59,000.00
Total Properties and Equipment ₱ 64,900.00
Total Assets ₱ 121,225.00
Liabilities
Accounts Payable ₱ 8,600.00
Accrued Interest Expense ₱ 80.00
Total Liabilities ₱ 38,680.00
Owner's Equity
Less: L.B. Manuel, Drawing ₱ 5,000.00
Net Capital ₱ 75,000.00
Add: Net Profit ₱ 7,545.00
Total Capital ₱ 82,545.00
Total Liabilities & Owners Equity ₱ 121,225.00
37
Statement of Changes in Equity
Montero Capital - beginning 80,000.00

Montero Capital - ending 82,545.00

Cash flow Statement
Cash flow from Operating Activities

Cash received from customers 30,450.00
Cash paid for expenses (59,700.00)
Net Cash flow from Operating Activities (44,250.00)
Cash flow from Investing Activities
Cash paid to acquire equipment (15,000.00)
Net Cash flow from Investing Activities (15,000.00)
Cash flow from Financing Activities
Cash received from investment of owner 80,000.00
Cash paid to owner- drawing (5,000.00)
Net Cash flow from Financing Activities 75,000.00
Net Increase (Decrease) in Cash 15750.00
Cash – May 31, 2020 15,750.00

Notes to Financial Statements
Year Ended December 31, 2020
LBM Stitches & Style Shop (“we,” “our,” “us” or “the Company”) delivers one-to-one
personalization to our clients through the combination of data science and human judgment.
Our stylists hand select items from a broad range of merchandise. Stylists pair their own
judgment with our analysis of client and merchandise data to provide a personalized shipment
of apparel, shoes, and accessories suited to each client’s needs.
Accounting Policies
The financial statements include the accounts of LBM Stitches & Style Shop and our
wholly owned subsidiaries, and have been prepared in accordance with generally accepted
accounting principles (“GAAP”) and the requirements of the Securities and Exchange
Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes
38
or other financial information that are normally required by GAAP can be condensed or
omitted. These financial statements have been prepared on the same basis as our annual
consolidated financial statements and, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, which are necessary for the fair statement
of our financial information.
Investment
We determine the appropriate classification of our investments at the time of

purchase and reevaluate the classification at each balance sheet date.
Equipment
Equipment is stated at acquisition cost. The sewing machines are estimated to have
a 5-year useful life.
8. Closing Entries
Closing Entries
Date Explanation Debit Credit
2020
Dec. 31 ₱37,450.00
Service Income
₱37,450.00
Income Summary
Dec . 31 ₱29,905.00
Income Summary
Wage ₱5,000.00
s Utility Expense ₱1,500.00
Insurance Expense ₱475.00
Communication Expense ₱2,500.00
Sewing Supplies Used ₱1,000.00
Clothing Materials Used ₱8,000.00
₱10,000.00
Rent Expense
Interest Expense ₱80.00
Depreciation- Sewing Equipment ₱1,000.00
Bad Debts ₱350.00
Dec.
31
Income Summary ₱7,545.00
L.B Manuel Capital ₱7,545.00
Dec. 31
L.B Manuel Capital ₱5,000.00
L.B Manuel Drawings ₱5,000.00
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9. Post- Closing Trial Balance
LBM Stitches and Style Shop
Post Closing Trial Balance
Dec. 31,2020
Cash ₱15,750.00
Accounts Receivable ₱6,650.00
Sewing Supplies ₱1,700.00
Clothing Materials ₱7,000.00
Sewing Tools ₱5,900.00
Prepaid Rent ₱20,000.00
Prepaid Insurance ₱5,225.00
Sewing Equipment ₱59,000.00
Accounts Payable- Virgilio Trading ₱8,600.00
Notes Payable ₱30,000.00
Accrued Interest Expense ₱80.00
L.B. Manuel, Capital ₱82,545.00
₱121,225.00 ₱121,225.00
Writers:
Efren N. Nocete
Jennivic L. Mangampo
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Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4-Week 3

DESCRIBING THE NATURE OF TRANSACTIONS IN MERCHANDISING BUSINESS
Merchandising Business is a company that buys goods and resells these goods, without
making any modifications, at a price higher than its purchase price for the purpose of making profit.
Also “trading” and “retailing” describes a merchandising business. This type of business is very
common in the Philippines and can range from small- to large-sized entities. Examples would be the
neighborhood sari-sari stores, department stores, grocery shops, and those selling in wholesale. its
normal operations consist of buying and selling merchandise, billing customers, and collecting
customer accounts. The cash collected from customers would be used to buy a new set of
merchandise so the process repeats.
Service vs Merchandising
Service Business
• Net income is the difference between its revenues and the expenses incurred in providing
the services.
Merchandising Business
• Earns net income by buying and selling merchandise
• Merchandise inventories represent goods intended for sale
Wholesale vs Retail
Wholesaler
• An intermediary that buys products from manufacturers or other wholesalers and sells them
to retailers or other wholesalers
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Retailer
• Buys products from the manufacturers or wholesalers and sells them to consumers
MERCHANDISING
MANUFACTURER WHOLESALER RETAILER CUSTOMER
OPERATING CYCLE OF A MERCHANDISING BUSINESS

The merchandising entity purchases inventory, sells the inventory and uses the cash to
purchase more inventory - and the cycle continues. For cash sales, the cycle is from cash to inventory
and back to cash. For sales on account, the cycle is from cash to inventory accounts receivable and
back to cash. In any industry, the manager strives to shorten the cycle. The faster the sale of inventory
and the collection of cash, the higher the profits.
The following illustrates the Operating Cycle of a Merchandiser:
Collection Cash
Cash
Cash Sales
Purchase
Accounts
Receivable
s
Purchase
Inventory
Inventory
Sales on Account
CASH SALES SALES ON ACCOUNT
Merchandising Businesses Operating Cycle
⮚ Operating Cycle is the process by which a company spends cash to generate revenues, and
receives cash payments at the time of sale or in the future by collecting on an account receivable. The
process and length of the operating cycle will vary depending on the nature of the business. It includes
the time it takes from the purchase, the resale of inventory, and the subsequent collection of cash
related to the sale.
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Illustration: Liza operates a small retail store in Albay. If she purchases snacks and delicacies from her
supplier today, these purchased goods take an average of 3 days before being sold. Cash is received
immediately upon sale of the snacks. Determine Liza’s operating cycle.
Operating Cycle = Days of Inventory + Days of Receivable = 3 days
⮚ Merchandising business’s operating cycle differs from that of a service because a

merchandising business must purchase merchandise for sale to customers. Operating cycle
differs among merchandising businesses (e.g., grocery store vs. jewelry store)
DEFINITION AND NATURE OF MERCHANDISING BUSINESS
MERCHANDISE refers to an item bought by a business for the purpose of reselling it.
It is referred to as goods. Merchandise that remains unsold at the end of the accounting
period is known as merchandise inventory, end which is commonly referred to as stocks.
Ending inventory is classified as a current asset in the statement of financial position/balance
sheet because it is expected to provide future benefits by being sold within a period of one
year. Once sold, the business expects to receive cash from the customer.
Merchandise inventory, beginning refers to merchandise that remains unsold from

the previous accounting period and forms part of the cost of goods in the income statement.
Inventory Reporting
Companies can either use (1) perpetual or (2) periodic system in reporting their inventories.
⮚ Perpetual inventory system
Under the perpetual inventory method, cost of goods sold and inventory may be
determined from accounting records without a physical count of goods. It requires
maintenance of records called stock card. Which shows a running balance of the inventory
increases and decreases. Merchandise account is debited upon purchase of goods.
⮚ Periodic inventory system
When a periodic inventory method is used, cost of goods sold and the ending
inventory is determined by physically counting the items and multiplying the number of items
counted by its cost. Acquisition of goods is charged to the Purchases Account.
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Companies incur costs for having the goods delivered to their intended location. If the
delivery fee is paid for the incoming merchandise, such payment forms part of the inventory.
This is inventory sold by the company, which we call freight-out is expensed. This forms part
of the selling expense.
Differences Between Perpetual and Periodic Inventory Systems
Perpetual Periodic
● Used for both expensive and ● Used for inexpensive items

inexpensive items ● Cheaper to implement
● More Costly to implement ● No record is kept for transactions
● Record exists in every movement of the involving inventory movement
inventory ● Inventory physical count is made at year
● Inventory physical count is made at least end to establish ending inventory
once a year amount
● Keeps a continuous track of all inventory ● Periodically tracks inventory balances
balances with every sales or transaction either weekly, monthly, quarterly, or
● Two journal entries are made when annually
there’s a sale transaction ● One journal entry is made when there's
● Does not require a closing entry a sale transaction
● Requires a closing entry
Measuring Net Income
➢ Net income to a merchandiser implies that revenue from selling merchandise exceeds
both the cost of the merchandise sold to customers and the cost of other expenses for the period.
Financial Statements
Service Business Merchandising Business
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Revenues P XXX Sales P XXX
Less: Operating expenses (XXX) Less Cost of Goods Sold (XXX)
Net Income P XXX Gross Profit P XXX
Less: Operating Expenses (XXX)
Net Income P XXX
⮚ Sales: revenues collected from the sale of merchandise

➢ Cost of goods sold: expense; the purchase price plus incidentals of merchandise
available for resale
⮚ Gross profit = profit before deducting operating expenses
⮚ Merchandise Inventory = merchandise not sold or merchandise on hand at the end of an
accounting period, current asset on balance sheet
SOURCE OF DOCUMENTS
Merchandising business use various business forms and documents to help identify the
transactions that should be recorded in the books. These source documents contain vital information
about the nature and amount of the transactions. The more common source documents along with
their descriptions.
1. Sales invoice is prepared by the seller of goods and sent to the buyer. This document contains
the name and address of the buyer, the date of sale and information – quantity,
description and price – about the goods sold. It also specifies the amount of sales, and the
transportation and payments of items.
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2. The bill of lading is a document issued by the carrier – a trucking shipping or airline – that
specifies contractual conditions and terms of delivery such as freight terms, time, place and
the person named to receive the goods.
3. The statement of account is a formal notice to the debtor detailing the accounts already due.
4. The official receipt of cash by the seller or authorized representative. It notes the invoices
paid and other details of payment.
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5. Deposit slips are printed forms with depositor’s name, account number and space for
details of the deposit. A validated deposit slip indicates that cash and checks with the
supplied details were actually deposited or credited to the account holder.
6. A check is a written order to a bank by a depositor to pay the amount specified in the
check from his checking account to the person named in the checked. The entity issuing
the check is the payor while the receiver is the payee.
7. The purchase requisition is a written request to the purchaser of an entity from an employee
or user department of the same entity that goods be purchased.
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8. The purchase order is an authorization made by the buyer to the seller to deliver the
merchandise as detailed in the form.
9. Receiving report is a document containing information about goods received from a vendor.
It formally records the quantities and description of the goods delivered.
10. A credit memorandum is a form used by the seller to notify the buyer that his account is being
decreased due to errors or other factors requiring adjustments.
STEPS IN A PURCHASE TRANSACTION/PROCUREMENT
Whenever a purchase or sale of merchandise occurs, the buyer and the seller should agree on
the price of the merchandise, the payment terms and the party to shoulder the transportation costs.
Owners of small merchandising firms may settle these terms informally by phone or by discussion with
the vendor’s representative. Most large businesses, follow certain procedures when purchasing
merchandise. The procedures are as follows:
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TERMS OF TRANSACTIONS
Merchandise may be purchased and sold either on credit terms or for cash on delivery.
When goods are sold on account, a period of time called the credit period is allowed for payment. The
length of the credit period varies across industries and may even vary within an entity, depending on
the product.
When goods are sold on credit, both parties should have an understanding as to the amount
and time of payment. These terms are usually printed on the sales invoice and constitute part of the
sales agreement. If the credit period is 30 days, then payment is expected within 30 days from the
invoice date. The credit period is usually described as the net credit period or net terms. The credit
period of 30 days is noted as “n/30”. If the invoice is due 10 days after the end of the month, it may
be marked “n/30 eom.”
CASH DISCOUNTS
Some businesses give discounts for prompt payment called cash discounts. If a trade
discount is also offered, cash discount is computed on the net amount after the trade discount. This
practice improves the seller’s cash position by reducing the amount of money in accounts receivable.
Cash discount is designated by such notation as “2/10” which means the buyer may avail of a two
49
percent discount if the invoice is paid within 10 days from the invoice date. The period covered by the
discount, in this case – 10 days, is called the discount period.
Cash discounts are called purchase discounts from the buyer’s viewpoint and sales
discounts from the seller’s point of view.
It is usually worthwhile for the buyer to take a discount if offered although it may be
necessary to borrow the money to make the payment.
Illustration:
Assume that an invoice for P 150,000 with terms 2/10, n/30, is to be paid within the
discount period with money borrowed for the remaining 20 days of the credit period. If an annual
interest rate of 18% is assumed, the net savings to the buyer is P 1,530 which is determined as follows:
Cash Discount of 2% on P 150,000 P 3,000

Interest for 20 days at an annual rate of 18% on the amount
Due within the discount period:
P 147,000* x 18% x 20/360 1, 470
Savings Effected by Borrowing P 1,530
*Amount Due = P 150,000 Invoice Price – P 3,000 Cash Discounts
CASH DISCOUNT ON PARTIAL PAYMENTS
A discount is granted on partial payments if all the partial payments taken together
are fully paid within the discount period. This discount is computed as if only one payment
had been made to fully settle the account of buyer.
Illustration:
Mr. Kind has an account of P 60,000 with terms of 3/20, n/30. He paid this account in 3
equal installment that is P 20,000 for each payment within 20 days. The cash discount is P1,200 or 2%
of P 60,000.
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Computation:
Total account P 60,000
Less: First payment 20,000
Balance after first payment P 40,000
Less: Second payment 20,000
Balance after second payment P 20,000
Less: 2% discount (.02 x P 60,000) 1,200
Amount to be paid on last payment P 18, 800
TRADE DISCOUNTS
This kind of discount is a deduction from the catalog or list price granted to purchaser of goods.
There is no trade discount account and there is no special accounting entry for this discount. Instead,
all accounting entries are based on the invoice price which is obtained by subtracting the trade
discount from the list price.
Advantages of granting trade discount
1. It encourages customers to buy in large quantities.

2. It enables the seller to establish the different prices to different customer
3. It facilitates an easier changing of price without changing the printed catalog
price.
Illustration: The list price of commodity A is P5 per unit. Miss Honest purchased 1,000units and was
granted a 10% trade discount. The amount of purchase therefore is as follows:
Purchase (1,000 units @ P5/unit) P 5,000
Less: 10% trade discount 500
Invoice Price P 4,500
The amount recorded in the books of both buyer and seller is P 4,500
PURCHASE OF MERCHANDISE
In order to generate revenue in a merchandising business, the business must be able

to sell its merchandise. However, selling would not be possible if there is no merchandise to
sell in the first place. Merchandise may have been invested by the owner into the business or
may have been bought by the business from suppliers.
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Merchandise can be purchased on any of the following terms:
1. On a cash basis – the buyer pays cash for the amount of merchandise purchased.
Illustration: On June 1, 2020, Mr. Loyal bought merchandise worth Php 50,000 and paid in
cash
2. On credit basis - the buyer receives the merchandise. The Payment is on a specific future
date.
Illustration: On July 1, 2020 Mr. Loyal bought merchandise worth Php 20,000 on account
3. On credit basis supported by a promissory note. The buyer receives the merchandise. The
payment is made through a signed promissory note.
Illustration: On August 1, 2020 Mr. Loyal purchased again Php 30,000 worth of merchandise
and issued a promissory note.
4. With a down payment and a balance on account. The buyer receives the merchandise and
pays partially the amount of goods purchased. The balance will be paid on a specific date.
Illustration: On September 1, he bought P 40,000 merchandise by paying P 10,000 down
payment and the balance on account.
5. With down payment and the balance supported by a promissory note. The buyer paid
partially the amount of goods and issued a promissory note for the balance.
Illustration: He bought P60,000 worth of merchandise by giving a P20,000 down payments
and issued a promissory note for the balance.
6. With a down payment and part of the balance supported by a promissory note and the
other part on account.
Illustration: On November 1, Mr. Loyal purchased P50,000 worth of merchandise. Ha gave a
down payment of P15,000, issued a P20,000 promissory note and promise to pay
the balance within 10 days
PURCHASE RETURNS AND ALLOWANCES
When the goods delivered to the buyer are of inferior quality, not within the
purchase order specification, defective, or are damaged and the buyer is not responsible for
such damages, the seller allows the buyer to return the goods and makes the corresponding
deductions from the customer’s account. Or in case purchases, a corresponding cash refunds
is given. Sometimes the buyer is not required to return the goods, and the seller in that case
made the necessary deduction on his account which is called allowance.
Purchase returns and allowances is a contra account and is accordingly deducted

from purchases in the income statement.
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Illustrations: 1. Mr. Loyal returned P3,500 of the goods he purchased on a cash basis.
2. On July 19t n, Mr. Loyal returned P5,000 of the merchandise he purchased on credit.
CREDIT MEMORANDUM
A memorandum sent to notify the buyer that the seller has its records credited the
former’s account. If goods are returned by the buyer to the seller, necessary adjustments are
made on the account of the buyer. In such case, a credit memo is issued by the seller for the
necessary adjustments.
DELIVERY OF GOODS PURCHASED
If the buyer pays for the delivery of goods bought, such is charged to Freight In or
Transportation In account. The amount is added to the cost of goods.
Illustration: Miss Faith bought P 50,000 worth of goods for her store. She also paid P 1,000 for the
delivery of goods she purchased.
Cost of goods purchased P 50,000
Add: Freight In 1,000
Total Cost of Goods P 51,000
SALES OF MERCHANDISE AND OTHER ASSETS
Sales is an income account which consists of gross proceeds from the merchandise sold.
It is recorded at selling price of goods disposed of. The selling price consists of the cost of goods
and the gross profit or markups, or gross loss or mark down.
SALES RETURNS AND ALLOWANCES
Dissatisfied customers are allowed to return defective or unsatisfactory goods that

they purchased, or they are allowed to keep such goods and are given an allowance for the
corresponding amount of defects. Information regarding returns and allowances is reflected
in the Sales Return and Allowances account.
Sales return and allowances is a contra-income account and accordingly deducted

from gross sales in the income statement.
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Illustration: On September 1, 2020, Faith’s Store sold merchandise worth P 10,000 to Ms.
Thoughtful on account. Two days after Ms. Thoughtful returned P 500 worth of
defective merchandise.
DISCOUNT ON SALES
Usually, customers are granted discounts for early payments of accounts. This is
called cash discounts. Granting cash discounts reduces the amount invested in receivables
and also tends to decrease losses from uncollectible accounts.
When goods are sold on credit, the terms of sale is indicated on the sales invoice.
An example of such term is 2/10, n/30 which means that the credit period is 30 days, from
the invoice date but the customer will be granted a 2% discount if payment is made within
10 days from the invoice date.
Illustration: 1. On June 1, 2021, XYZ Trading sold merchandise to Mr. Loyal for P 20,000. Terms
2/10,n/30.
2. On June 8, Mr. Loyal paid his account
Invoice Price P 20,000

Less: Discount (.02 x P20,000) 400
Amount received P 19,600
DELIVERY OF GOODS SOLD
If the seller pays for the delivery of goods sold, the amount is debited to Freight Out
or Transportation Out account. Freight Out or transportation Out is one of the operating
expenses of the seller.
Illustration: XYZ Trading paid P 1,000 for the delivery of goods to Mr. Loyal.
54
Determining the ownership transfer point is critical when shipping goods.
Source: www.mheducation.com.
TERMS OF SHIPMENT
1. FOB Shipping Point – FOB means Free on Board. This means that the seller pays for the
transportation expenses of the merchandise up to the shipping point.
2. FOB Destination - The freight is shouldered by the seller up to the point of destination. If the
term of shipment is FOB, the title of goods remains with the seller until the goods are
received by the buyer.
OPERATING EXPENSES
An operating expense makes up the third major part of the income statement for a
merchandising entity. These are expenses, other than the cost of sales, which are incurred to
generate profit from the entity’s major line of business – merchandising. It is customary to group
operating expenses into useful categories. Distribution costs, administrative expenses and other
operating expenses are the categories.
Distribution costs or selling expenses are those expenses related directly to the
entity’s efforts to generate sales. These include sales salaries and commissions, and related
employer payroll expense, advertising and store displays; travelling expenses; store
supplies used; depreciation of store property and equipment; and transportation
out/freight out.
55
Administrative expense are those expenses related to the general administration
of the business. These include officers and office salaries, and related employer payroll
expenses; office supplies used; depreciation of office property and equipment; business
taxes, professional services; uncollectible accounts expenses and other general office
expenses.
Other operating expenses are those expenses that are not related to the central
operations of the business. These are expenses and losses from peripheral or incidental
transactions of the enterprise; for example, loss on sale of investments or loss on the sale
of property and equipment.
LEARNING COMPETENCY
Describe the nature of transactions in a merchandising business. ABM_FABM11- IVe-j -35
ACTIVITIES
ACTIVITY 1.
A. Identification: From the listed terms below, select the term that relates to each of the
following statements.
Trade Discount Periodic Inventory System Freight In

FOB Destination Cash Discount Merchandise
Sales return and allowances Perpetual Inventory System
_______ 1. This transportation arrangement passes ownership to the goods to the buyer only when
the buyer receives the merchandise.
56
_______ 2. This discount encourages the buyers to purchase goods because of markdowns from the
list price.
_______ 3. This refers to goods bought by the business for the purpose of selling it.
_______ 4. It is allowed to encourage buyers to pay at an early date.
_______5. This inventory system, the cost of goods sold and the ending inventory is determined by
physically counting the items and multiplying the number by its cost.
B. True or False. Draw if the statement is True and if the statement is False.
_______ 6. Cash discounts are called purchases discounts from buyer’s point of view.
_______ 7. The two main systems for accounting for merchandise are periodic and perpetual
_______ 8. The periodic inventory system requires recording the cost of each sale as it occurs.
_______ 9. Terms of 2/10, n/30 is an example of a trade discount.
______ 10. Transportation In is treated as an addition in the cost of goods sold section of the
Income Statement.
ACTIVITY 2. “What’s All These Documents”
Direction: Name and describe the use of the following documents.
11.
57
12.
13.
14.
58
15.
ACTIVITY 3. “Draw Me a Cycle”

Direction: Think of one merchandising business you want to put up and describe or illustrate the
operating cycle of your desired business.
59
Rubric for Scoring Activity 3
Components Needs Developing Sufficient Above Average

Improvement
1 2 3 4
The purpose of The central The central The central

Clarity 50% the student work purpose of the purpose of the purpose of the
is not defined. student is student is clear student is clear
(supported by The central ideas identified. Ideas and ideas are and supporting
relevant are not focused are generally almost always ideas are always
information and to support the focused in a way focused in a way well- focused.
ideas) topic. that supports the that supports the Details are
topic. topic. relevant, enrich
the work.
Organization 40% Information and Information and Information and Information and
ideas are poorly ideas are ideas are ideas are
(sequence of sequenced. The presented in an presented in a presented in a
elements/ ideas) reader has order that the logical sequence logical sequence
difficulty reader can follow which is followed which flows
following the with minimum by the reader naturally and is
thread of difficulties. with little or low engaging to the
thought. difficulty. reader.
There are five There are no There are no There are no

Mechanics 10% or more more than four more than Three more than two
misspellings and misspellings and misspellings and / misspelled
Correction of / or systematic / or systematic or systematic words or
grammar and grammatical grammatical grammatical grammatical
spelling) errors in the errors in the errors in the errors in the
entire essay. entire essay. entire essay. essay.
GUIDE QUESTIONS
1. What are the transactions in merchandising business?

2. What are the source documents in the merchandising business?
60
REFLECTION
Congratulations! You have completed the lessons successfully. Before going to the next learning
activity, check the icon that best shows your learning experience.
I have understood the lesson well and I can even teach what I learned to others.
I have understood the lesson but there are still other things I need to review and
relearn.
I need to do additional work to be able to master the lesson. I need help in some
tasks .
REFERENCES FOR LEARNERS
Florendo, Joselito G., Fundamentals of Accountancy, Business, And Management 1

Arganda, Amelia M., Fundamentals of Accounting Bookkeeping I for Senior High School
Tugas, FlorenzC., Salendrez, Herminigilds DE., and Rabo, Joy S.Fundamentals of Accountancy
Business and Management 1
https://www.youtube.com/watch?v=col_eHVJhcg
https://www.orderhive.com/periodic-and-perpetual-inventory-system-method
https://www.communitytax.com/perpetual-vs-periodic-inventory/
https://www.youtube.com/watch?v=JhFmab5Cdrw
https://www.youtube.com/watch?v=lNeUbt7mTZw
https://www.fool.com/the-blueprint/fob-shippin
Prepared by:
TERESITA O. MANDAC
MARIBEL N. VELUZ
Libon Agro-Industrial High School
61
ANSWERS KEY
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Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET [Q4 - Week 4a]

Preparing Journal Entries on Merchandising Business Using General Journal
A merchandising business (or a trading business) are those that buys goods and resell
these goods, without making any modifications, at a price higher that is purchase price for the
purpose of making profit. This type of business is much common in the Philippines and can range
from small-to-large sized entities. Examples would be the neighborhood sari-sari stores, department
stores, grocery shops, and those selling in wholesale.
Hence inventory is the most important asset of a merchandising business as this is where the
business derives its regular income/revenue streams. Business can either use the (1) perpetual or (2)
periodic system in reporting their inventories.
1. Periodic inventory system provide data on inventory level at some points in time. A
physical count is made usually at year-end to provide figures as to how many exist at
that point in time. This system is normally used by merchandising firms selling
innumerable products or relatively lower price, example, groceries, small department
stores.
2. Perpetual inventory system keeps track of all changes in inventory account. This system
is used by merchandising firms selling limited number of products of relatively high value,
example, appliances, equipment, jewelry and the likes.
Accounting for Purchases (Periodic Inventory System)

Merchandise bought and received is accomplished
by business form called purchase invoice.
Purchases made on cash basis journal entry:

Debit to : Purchases
Credit to : Cash
Purchases made on account/credit journal entry:
Debit to: Purchases
Credit to: Accounts Payable
Upon payment of purchases on account:
Debit to: Accounts Payable
Credit to: Cash
To record transportation upon purchases:
Debit to: Freight-In
Credit to: Cash / Accounts Payable
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Accounting for Purchases (Perpetual Inventory System)
Merchandise bought and received is accomplished by business form called purchase invoice.
To purchase goods for cash from a supplier using To purchase goods on account from a supplier
perpetual inventory system journal entries using perpetual inventory system journal entries
Account Debit Credit Account Debit Credit
Merchandise Inventory XXX Merchandise Inventory XXX
Cash XXX Accounts payable XXX
To record transportation/freight costs To record a purchase return to a supplier using

perpetual inventory system journal entry
Account Debit Credit Account Debit Credit
Merchandise Inventory XXX Accounts payable XXX
Cash or Accounts payable XXX Merchandise Inventory XXX
Accounting for Sales (Periodic Inventory System)
Every sales is supported by an invoice. The

sales invoice of the seller is the purchase
invoice of the buyer.
For cash sales:

Debit to: Cash
Credit to : Sales
For sales on account / on credit:

Debit to: Accounts Receivable
Credit to: Sales
Upon collection of sales on account:

Debit to: Cash
Credit to: Accounts Receivable
To record transportation upon sales of goods:

Debit to: Freight-Out
Credit to: Cash / Accounts
Payable
64
Accounting for Sales (Perpetual Inventory System)
Merchandise sold is accomplished by business form called sales invoice.
To record the sales on account of goods to a customer To record a sales return from a customer using perpetual
using perpetual inventory system journal entry inventory system journal entry
Account Debit Credit

Accounts receivable XXX Merchandise Inventory XXX
Sales XXX Cost of Sales XXX
Sales returns XXX

Cost of Sales XXX
Accounts receivable XXX

Merchandise Inventory XXX
Take Note on the Normal Side of the Merchandise Account Titles:
Merchandise Account Titles Normal Side
Purchases Debit Side
Purchase Returns / Allowances Credit Side
Purchase Discount Credit Side
Freight-In Debit Side
Sales Credit Side
Sales Returns / Allowances Debit Side
Sales Discount Debit Side
Cost of Sales / Cost of Goods Sold Debit Side
Merchandise Inventory Debit Side
Freight-Out Debit Side
Sample Illustration: Understand and analyze each given transaction. Take note that each transaction
is different in nature.
Illustration of Recording Merchandising Transactions Under the Periodic and Perpetual Inventory
System.
The following selected transactions and events for Super Sales Stores during the first month
of operations, for the month of March, 2019 would be used to illustrate accounting for
merchandising transactions under Periodic and Perpetual Inventory System.
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Transactions Periodic Inventory System Perpetual Inventory System
1.) March 1 - Bought Purchases ₱ 10,000 Merchandise Inventory ₱ 10,000
merchandise for cash, ₱ Cash ₱ 10,000 Cash ₱ 10,000
Bough merchandise for Bough merchandise for cash.
10,000.of March cash.
2.) March 3 - Paid the Freight-In ₱ 120 Merchandise Inventory ₱ 120
transportation for the Cash ₱ 120 Cash ₱ 120
Paid transportation. Paid transportation.
merchandise purchased,
₱120.
3.) March 5 - Bough Purchases ₱ 8,000 Merchandise Inventory ₱ 8,000
merchandise on account from Accounts Payable ₱ 8,000 Accounts Payable ₱ 8,000
Bought merchandise on Bought merchandise on account.
Elegant Store, ₱8,000. account.
4.) March 7 - Returned to Accounts Payable ₱ 2,000 Accounts Payable ₱ 2,000
Elegant Store some defective Purchase Returns ₱ 2,000 Merchandise Inventory ₱ 2,000
Returned defective merchandise. Returned defective merchandise.
merchandise worth ₱2,000.
5.) March 9 - Received Accounts Payable ₱ 120 Accounts Payable ₱ 120
additional allowances from Purchase Allowances ₱ 120 Merchandise Inventory ₱ 120
Received additional allowances. Received additional allowances.
Elegant Store ₱120 for the
merchandise bought from
them.
6.) March 11 - Paid the Accounts Payable *₱ 5, 880 Accounts Payable *₱ 5, 880
account to Elegant Store. The Purchase Discount ₱ 117.60 Merchandise Inventory ₱ 117.60
Cash ₱ 5,762.40 Cash ₱ 5,762.40
supplier granted ₱117.60 cash Paid the account to Elegant. Paid the account to Elegant.
discount. *(₱8,000 - ₱2,000 - ₱120 = 5,880) *(₱8,000 - ₱2,000 - ₱120 = 5,880)
Cash ₱ 10,800 Cash ₱ 10,800
7.) March 13 - Sold Sales ₱10,800 Sales ₱10,800
Sold merchandise for cash. Sold merchandise for cash.
merchandise for cash,
₱10,800. (Cost of merchandise Cost of Sales ₱ 7,907.40
is ₱ 7,907.40) Merchandise Inventory ₱7,907.40
Cost of merchandise.
Accounts Receivable ₱ 6,750 Accounts Receivable ₱ 6,750
8.) March 15 - Sold Sales ₱ 6,750 Sales ₱ 6,750
Sold merchandise on account. Sold merchandise on account.
merchandise on account to
Ms. Rivera, ₱ 6,750. (Cost of Cost of Sales ₱ 5,000
merchandise ₱ 5,000.) Merchandise Inventory ₱ 5,000
9.) March 17 - Paid ₱ 70 for Freight-Out ₱ 70 Freight-Out ₱ 70
the delivery of the Cash ₱ 70 Cash ₱ 70
Paid transportation. Paid transportation.
merchandise sold in H.
10.) March 19 - Received Sales Returns ₱ 1,000 Sales Returns ₱ 1,000
returned merchandise from Accounts Receivable ₱ 1,000 Accounts Receivable ₱ 1,000
Received returned merchandise. Received returned merchandise.
Ms. Rivera ₱1,000. (Cost of
merchandise returned ₱ 740) Merchandise Inventory ₱ 740
Cost of Sales ₱ 740
11.) March 21 - Granted an Sales Allowance ₱ 50 Sales Allowance ₱ 50
allowance to Ms. Rivera, ₱50. Accounts Receivable ₱ 50 Accounts Receivable ₱ 50
Allowance granted. Allowance granted.
13.) March 23 - Received Cash ₱ 5,586 Cash ₱ 5,586
payment for the account of Sales Discount ₱ 114 Sales Discount ₱ 114
Accounts Receivable *₱ 5,700 Accounts Receivable *₱ 5,700
Ms. Rivera. Super Sales Store Received payment. Received payment.
granted a discount of ₱ 114. (*₱ 6,750 - ₱ 1,000 - ₱ 50 = ₱ 5,700) (*₱ 6,750 - ₱ 1,000 - ₱ 50 = ₱ 5,700)
Note: Observe proper indention on the credit side and explanation.
66
Sample General Journal Sheet
Page No.: _________
ACCOUNT
DATE
PARTICULARS NUMBER DEBIT CREDIT
(DD/MM/YY)
(F)
Sample Journal Entries Using General Journal (Periodic Inventory System)
Transactions: March 1 - Bought merchandise for cash, ₱ 10,000.
March 3 - Paid the transportation for the merchandise purchased, ₱120.
Date Particular F Debit Credit
Mar-01 Purchases ₱10,000.00
Cash ₱10,000.00
Bought merchandise for cash.
Mar-03 Freight-In ₱120.00
Cash ₱120.00
Paid the transportation for the merchandise purchased
Note: Provide a space every after each journal entry.
Sample Journal Entries Using General Journal (Perpetual Inventory System)
Transaction: March 1 - Bought merchandise for cash, ₱ 10,000.
March 3 - Paid the transportation for the merchandise purchased, ₱120.
67
Mar-01 Merchandise Inventory ₱10,000.00
Cash ₱10,000.00
Mar-03 Merchandise Inventory ₱120.00
Cash ₱120.00
Paid the transportation for the merchandise purchased
Note: Provide a space every after each journal entry.
LEARNING COMPETENCY
Record transactions of a merchandising business in the GENERAL JOURNAL.[ABM_FABM11-IVe-j-36A]
ACTIVITIES
General Instruction. Use the following account titles in preparing the General Journal Entries:
Cash, Accounts Receivable, Accounts Payable, Sales, Sales Discount, Sales Returns, Cost of
Sales, Merchandise Inventory, Purchases, Purchase Discount, Purchase Returns, , Freight-In,
Freight-Out.
Activity # 1: Purchases Transactions.

Direction: Prepare the journal entries using Perpetual Inventory System.
Several purchase transactions of Anna Store are presented below.

Oct. 6 – Purchased merchandise for cash ₱ 200,000.
7 – Paid freight charges ₱ 7,000 on merchandise acquired last Oct. 6.
12 – Purchased merchandise on account ₱ 700,000. Granting 3% discount if paid within 5 days.
15 – Returned merchandise purchased on account ₱ 50,000.
17 – Paid supplier the amount due.
68
Activity # 2: Sales Transactions.
Direction: Prepare journal entries using Periodic Inventory System.
Some of the sales transactions of Anna Store.

Oct. 10 – Sold merchandise for cash, ₱ 300,000.
11 – Paid freight/transportation ₱ 5,000 for the sold merchandise last Oct. 10.
14 – Sales on account ₱ 650,000. Granting 2% discount to customers if paid within 5 days.
16 – Received returned merchandise sold on account, ₱ 90,000.
19 – Collected the amount due from credit sales.
Activity # 3: Purchases and Sales Transactions.

Direction: Prepare journal entries using Periodic and Perpetual Inventory System.
The following are data from John Trading for the month of June, 2019.
Transactions Periodic Inventory System Perpetual Inventory System
June 2 – Purchased goods on Date Particular F Debit Credit Date Particular F Debit Credit
account from Lyn Trading worth June June Merchandise

2 Purchases 120,000 2 Inventory 120,000
₱ 120,000. Granting 8% discount
if paid within 5 days. Accounts Payable 120,000 Accounts
Payable 120,000
Purchased goods on account
Purchased goods on account
6 – Made a full payment to Date Particular F Debit Credit Date Particular F Debit Credit
Lyn Trading, availing for the

discount.
10 – Made sales on account Date Particular F Debit Credit Date Particular F Debit Credit
in the amount of ₱ 85,000 to

Richard Yap with 2% discount if
customer will pay within 15 days.
Cost of goods ₱ 70,000.
15 – Received the full Date Particular F Debit Credit Date Particular F Debit Credit
payment from Richard Yap.
18 – Purchased goods for Date Particular F Debit Credit Date Particular F Debit Credit
cash ₱ 56,000 for 2% discount.
69
20 – Cash sales from Date Particular F Debit Credit Date Particular F Debit Credit
customer, ₱ 35,000 with 2%

discount. Cost of goods is
₱26,000.
GUIDE QUESTIONS
1. What are the different account titles to use for merchandising business?
2. What are the differences between Periodic and Perpetual Inventory System?
3. What are the account titles to use in Periodic and Perpetual Inventory System?
4. How to prepare the journal entries of Periodic and Perpetual Inventory System?
REFLECTION
Rate yourself. For each parameter, please put a check on the column that shows how much
you understand the Learning Activity Sheet.
Parameters
Need Confused Confident
Support
1. I can analyze the transactions using the rules
of debit and credit.
2. I can prepare journal entries using periodic
inventory in the general journal.
3. I can prepare journal entries using perpetual
inventory in the general journal.
Textbooks:
1. Ebrusca and Lopez (2008). Bookkeeping for Servicing and Merchandising Firms (An
Introductory to Accounting). Rex Book Store.
2. Ballada, Win Lu (1998). Basic Accounting. Win Educational Series
Online References for Learners:

 Basic Accounting - Journalizing Sales and Purchase Transactions (Part 1)
https://www.youtube.com/watch?v=ynoYyDvg7rI
 Basic Accounting - Journalizing Sales and Purchase Transactions (Part 2)
https://www.youtube.com/watch?v=v0uC7WP3PCA
70
ANSWER KEY
Activity # 1: Purchases Transactions.

Direction: Prepare journal entries using Perpetual Inventory System.
71
Activity # 2: Sales Transactions.
Direction: Prepare journal entries using Periodic Inventory System.
72
Activity # 3: Purchases and Sales Transactions.
Direction: Prepare journal entries using Periodic and Perpetual Inventory System.
The following are the data from John Trading for the month of June, 2019.
Prepared by:
CHERRY B. LANTICAN, T-III

San Jose National High School - Malilipot
73
Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4-Week 4b

RECORDING TRANSACTION OF A MERCHANDISING BUSINESS IN SPECIAL JOURNALS
A journal entry is the next step in the accounting after analysing business
transactions. In this step all the general accounting transactions are recorded in general journal in a
chronological order. The journal is maintained essentially, on the concept of double entry system of
accounting, where each transaction affects at least two accounts.
For businesses with repetitive transactions, just like in a merchandising business, the company may use
special journals. Special journals record transactions of a specific type. The four special journals are cash
receipts journal, cash disbursements journal, purchases journal and sales journals.
Sales Journal- this journal specifically designed to record sales In merchandise on account
SALES JOURNAL
Date Account Debited Terms Inv. No. F Amount
Cash Receipts Journal- this journal specifically designed to record all transactions involving cash
receipts.
CASH RECEIPTS JOURNAL
Date Account Explanation F Amount Cr. Sales Cash Dr.
Credited Discounts
Dr.
Purchase Journal-this journal specifically designed to account for purchases of merchandise, supplies
and other assets n account.
PURCHASE JOURNAL
Date Terms Inv. No. F Amount
Cash Disbursement journal- all cash payments are recorded in this journal.
CASH PAYMENT /DISBURSEMENT JOURNAL
Date Account Explanation F Amount Dr. Purchase Cash Cr.
Debited Discount Cr.
74
General Journal- entries that do not fit in the other journals are recorded in this journal.
Illustration:
Records transaction of a merchandising business in the general and special journal.
Illustration of Recording Merchandising Transactions under the Periodic Inventory System.

The following selected transactions and events for Super Sales Stores during the first month of
operations would be used to illustrate accounting for merchandising business in special journal.
TRANSACTIONS PERIODIC INVENTORY SYSTEM
Jan 1 2002 Brought merchandise for cash P Purchases P 10,000
10,000.00 Cash P 10,000
Jan 2, 2002 Paid the transportation for the Freight-In P 120
merchandise purchased , P 120. Cash P120
Paid transportation
Jan 3 2002 Bought merchandise on account from Purchase P 8,000
Elegant Store, P 8,000 Account Payable P 8, 000
Bought merchandise on account
Jan 5, 2002Returned to Elegant Store some Accounts payable P 2,000
defective merchandise worth P 2,000 Purchase returns P 2,000
Returned defective merchandise
Jan 7, 2002 Received additional allowance from Accounts payable P120

Elegant Store P120 for the merchandise bought Purchase Allowances P120
from them Received Additional Allowances
Jan 10, 2002 Paid the account to Elegant Store. Accounts Payable P 5,880.00
The Supplier granted P 117.60 cash discount Purchase Discount P 117.60
Cash 5,762.40
Paid the Account to Elegant
*(P8000-P2000-P120=P 5880)
Jan 11,2002 Sold merchandise for cash P 10, 800 Cash P 10,800
(cost of merchandise is P 7, 907.40) Sales P 10,800
Sold merchandise for cash
Jan 15. 2002 Sold merchandise in account to Ms. Accounts Receivable P 6,750
Rivera P 6,750 ( Cost of merchandise P 5,000) Sales P 6,750
Sold Merchandise on account
Jan 16, 2002 Paid P 70 for the delivery of the Freight-out P 70
merchandise sold in H. Cash P 70
Paid transportation
Jan 20, 2002 Received returned merchandise Sales Returns P 1000
from Ms. Rivera P 1000 ( Cost of merchandise Accounts Receivable P 1000
returned P 740) Received returned merchandise
75
SALES JOURNAL

Jan 15, 2002 M. Rivera P6,750 P6,750
PURCHASE JOURNAL
Date Accounts Credited Terms Inv. No. F Amount

Jan 3, 2002 Elegant Store P8,000 P8,000
Date Account Credited Explanation F Cash (Dr) Sales Amount (Cr)

Discounts
Dr.
Jan 11 Sales Sold Merchandise P10,800 P10,800
CASH PAYMENT/DISBURSEMENT JOURNAL
Date Account Debited Explanation F Amount Dr. Purchase Cash Cr.

Discount Cr.
Jan 1, Sales P10,000 P10,000
2002
Jan 2, Freight-In 120 120
Jan 5, Elegant Store 2,000 2,000
Jan 7 Elegant Store 120 120
Jan 10 Elegant Store 5,880 P117.60 5,762.40
Jan 16 Freight-In 70 70
GENERAL JOURNAL
GJ-1
DATE ACCOUNTS TITLE AND EXPLAINATION REF DEBIT CREDIT
Jan 20, 2002 Sales Returns P1,000
Accounts Receivable P1,000
Received returned merchandise
LEARNING COMPETENCY
Records transaction of a merchandising business in the general and special journals

(ABM_FABM_11-IVe-j-36)
76
ACTIVITY
Record the transactions of Legazpi Trading in the Special Journals.
Legazpi Trading Company’s transactions for March 2020 were as follows

March 2 Bought merchandise on account from Alex Supplies, P15,900
4 Sold merchandise on account to Ludy Tayrus P15,200
5 Paid P200 freight for March 4 sale
6 Received credit memo from Alex Supplies for merchandise return, P300
11 Paid Alex Supplies
13 Collected from Ludy Tayrus
14. Bought merchandise from B. Coral Enterprises P13,400.
18 Bought merchandise from Lea Miranda Distributors P14,200 on account.
20 Paid freight on March 18 purchase P700
27 Paid Lea Miranda Distributors on March 18 purchase, P9,000. No allowed discount on partial
payment.
SALES JOURNAL

March 4
PURCHASE JOURNAL
Date Accounts Credited Terms Inv. No. F Amount

March 2
18
Date Account Credited Explanation F Cash (Dr) Sales Amount (Cr)

Discounts
Dr.
March
13
CASH PAYMENT/DISBURSEMENT JOURNAL
Date Account Debited Explanation F Amount Dr. Purchase Cash Cr.

Discount Cr.
March 2
5
11
14
20
27
77
GENERAL JOURNAL
GJ-1
DATE ACCOUNTS TITLE AND EXPLAINATION REF DEBIT CREDIT
March 6
GUIDE QUESTIONS
1. What are the Special Journal?

2. What are the Accounts that belong to Special Journal?
REFLECTION
In this activity I learned that__________________________________________________________

_______________________________________________________________________________
__________________________________________________________.
*Teaching Guide for Senior High School Fundamentals of Accountancy, Business and Management 1.
*https://www.myaccountingcourse.com/accounting-dictionary/special-journal
*https://www.youtube.com/c/filipinoaccountingjournal
78
ANSWER KEY
Prepared By:
HAZEL R. VELOSO
SAN JOSE NATIONAL HIGH SCHOOL
MALILIPOT, ALBAY
79
Name of Learner: _____________________________________ Grade Level: _______________
Section: _____________________________________________ Date: ___________________
LEARNING ACTIVITY SHEET (WEEK 5)
Posting transactions in the General and Subsidiary Ledgers

Classifying phase comes after the recording phase known as journalizing. Classifying phase is
done through posting to the ledger. Posting is the process of transferring information from the journal
to the ledger.
You have learned that there are two major types of ledger namely, the general ledger and the
subsidiary ledgers. In this lesson, the merchandising transactions are posted to both general and
subsidiary ledgers.
PROCEDURES IN POSTING
1. Locate the corresponding account title in the ledger.

2. Transfer to the ledger the following information from the journal: a.) date b.) explanation, and
c.) amount.
Debit accounts from the journal are posted on the debit side of the ledger and credit amounts
are posted on the credit side of the ledger.
3. Place the page number of the journal in which the information was taken to the folio column of
the ledger.
4. Place the folio column of the journal page number of the ledger in which the information was
posted.
Inserting the account number in the journal folio column serves two purposes:
a. It serves as a cross reference when it is desired to trace the amount from one record to another.
b. By writing the account number in the journal indicates that posting is completed.
Selected transactions for Tina Cordero Company during its first month in business are presented
below:
Sept. 1- Invested 10,000 cash in the business.

Sept 5- Purchased equipment for 12,000 paying 5,000 cash and the balance on account.
Sept. 25- paid 3,000 cash on balance owed for equipment.
Sept. 30- Withdrew 500 cash for personal use.
80
ILLUSTRATIVE EXAMPLE #1
The following selected journal entries for Super Sales Stores during the first month of operations would
be used to illustrate accounting for merchandising transactions under Periodic Inventory System.
Journal Entries
GJ1
Date Particulars F Debit Credit
March 1 Purchases 510 10,000
Cash 110 10000
3 Freight-In 520 120

Cash 110 120
Paid transportation.
5 Purchases 510 8,000

Accounts Payable-Elegant Store 210 8,000
Bought merchandise on account.
8 Accounts Payable-Elegant Store 210 2,000

Purchase Returns 530 2,000
Returned defective merchandise.
81
10 Accounts Payable-Elegant Store 210 120
Purchase Allowances 540 120
Received Additional allowance.
J2
March 14 Accounts Payable 210 5,880
Purchase Discount 550 117.6
Cash 110 5,762.40
Paid the account to Elegant.
(*8,000-2,000-120=5,880)
16 Cash 110 10,800

Sales 410 10,800
Sold merchandise for cash.
20 Accounts Receivable-Miss Rivera 112 6,750

Sales 410 6,750
Sold merchandise on account.
22 Freight –Out 560 70

Cash 110 70
Paid transportation.
24 Sales Returns 420 1,000

Accounts Receivable-Ms. Rivera 210 1000
Received returned merchandise.
26 Sales Allowance 430 50

Accounts Receivable-Ms. Rivera 210 50
Allowance granted.
31 Cash 110 5,586

Sales Discount 440 114
Accounts Receivable (6,750-1,000-50=5,700) 210 5,700
Received payment.
82
GENERAL JOURNAL GJ1
Date Explanation F Debit Credit
March 8 Elegant Store-A/P 210 2,000
Purchase Returns 530 2000
Returned merchandise.
10 Elegant Store-A/P 210 120

Purchase Allowance 540 120
Received additional allowance.
24 Sales Returns 420 1,000
Miss. Rivera-Accounts Receivable 210 1,000
Received returned merchandise.
26 Sales allowance 430 50

Miss. Rivera-Accounts Receivable 210 50
Allowance granted.
SPECIAL JOURNALS
SALES JOURNAL Page 1

Date Account Debited Terms F Amount
March 20 Miss. Rivera GJ2 6,750
31 Total Credit sales 6,750
PURCHASES JOURNAL Page 1

Date Account Debited Terms F Amount
March 5 Elegant Store GJ1 8,000
31 Total-Debit Purchases 8,000
83
CASH PAYMENTS JOURNAL Page 1
Date Account Debited Explanation F Amount Purchase Cash
Discounts Cr.
March 1 Purchases Cash purchases GJ1 10,000 10,000
3 Freight-In Paid transportation GJ1 120 120
14 Elegant Store Payment to Elegant GJ2 5,880 117.6 5,762.40
22 Freight-Out Paid transportation GJ2 70 70
16,070 117.6 15,952.40
CASH RECEIPTS JOURNAL Page 1

Date Account Credited Explanation F Amount Sales Cash
(Cr.) Discounts(Dr.) Dr.
March 16 Sales Cash sales GJ2 10,800 10,800
31 Miss Rivera Cash received from GJ2 5,700 114 5,586
Miss. Rivera
16,500 114 16,386
POSTING TO THE GENERAL LEDGER
CHART OF ACCOUNTS
100 Assets 500 Expenses
110 Cash 510 Purchases
112 Miss Rivera-Accounts Receivable 520 Freight In
530 Purchase Returns
200 Liabilities 540 Purchase Allowance
210 Elegant Store-Accounts Payable 550 Purchase Discount
300 Owner’s Equity 560 Freight Out
410 Sales
420 Sales Returns
430 Sales Allowances
440 Sales Discount
ACCOUNT: Cash Account No. 110

Balance
Date Items F Debit Credit Debit Credit
March 31 CR-1 16,386 16,386
March 31 CP-1 15,952.40 433.60
84
ACCOUNT: Accounts Receivable-Miss Rivera Account No. 112

March 20 Sales on account SJ 6,750 6,750
24 Received return mdse. GJ-2 1,000 5,750
26 Allowance granted GJ-2 50 5,700
31 Cash received from Ms. Rivera CR-1 5,700 0
Date ACCOUNT: Accounts Payable-Elegant Account No. 210
March Items F Debit Credit Debit Credit
5 Purchase on account PJ-1 8,000 8,000

8 Return defective merchandise GJ-1 2,000 6,000
10 Additional allowance GJ-1 120 5,880
14 Payment to Elegant CP-1 5,880 0
ACCOUNT: Sales Account No. 410

March-16 Cash sales CR-1 10,800 10,800
31 S-1 6,750 17,550
ACCOUNT: Sales Return Account No. 420

March 24 Received returned merchandise G J-1 1,000 1,000
ACCOUNT: Sales Allowances Account No. 430

March 26 Sales Allowance granted to Mr. L. Rivera. GJ-1 50 50
ACCOUNT: Sales Discounts Account No. 440

March 31 Sales Allowance granted to Mr. L. Rivera. CR-1 114 114
ACCOUNT: Purchases Account No. 510

March 1 Cash purchases CP-1 10,000 10,000
31 Purchase on account P-1 8,000 18,000
85
ACCOUNT: Freight In Account No.520
March 3 Paid transportation. CP-1 120 120
ACCOUNT: Purchase Returns Account No.530

March 8 Returned defective merchandise GJ-1 2,000 2,000
ACCOUNT: Purchase Allowances Account No.540

March 10 GJ-1 120 120
ACCOUNT: Purchase Discounts Account No.560

March 14 Payment to Elegant Styles Merchandising CP-1 117.60 117.60
ACCOUNT: Freight Out Account No.570

March 22 Payment to Elegant Styles Merchandising GJ2 70 70
SUBSIDIARY LEDGERS (ACCOUNTS RECEIVABLE)

March 20 SJ 6,750 6,750
24 J-1 1,000 5,750
26 J-1 50 5,700
31 CR-1 5,700 0
86
Subsidiary Ledger- Accounts Payable

8 Returned merchandise J-1 2,000 6,000
10 J-1 120 5,880
14 CP-1 5,880 0
II. LEARNING COMPETENCY
Post transactions in the general and subsidiary ledgers. (ABM_FABM11-IVe-j-37)
III. ACTIVITIES
ACTIVITY 1: Post to the general ledgers the journal entries found in the table below. Write your
answer in the answer sheet provided for.
GENERAL JOURNAL
GJ-1
DATE PARTICULARS REF. DEBIT CREDIT
2020
Dec 1 Cash 110 400,000
Merchandise Inventory 114 40,000
Furniture and Fixtures 116 75,000
Zac, Capital 310 515,000
Initial investment made by owner.
3 Cash 110 1,500

Accounts Receivable-Zoe 112 13,500
Sales 410 15,000
10% down, balance 2/10,n/30.
4 Office Supplies 115 3,200

Accounts Payable-Zest 210 3,200
2/5, n/30
9 Purchases 510 42,000

Cash 110 21,000
Accounts Payable-Big A 210 21,000
50% down, balance 2/ eom, n/60
21 Accounts Payable-Zest 210 1,000
Cash 110 1,000
Partial payment
87
22 Purchases 510 14,700
Notes Payable 211 14,700
Issued 10% 20-day note.
25 Cash 110 13,500

Accounts Receivable- Zoe 112 13,500
Full collection
29 Accounts Payable-Big A 210 21,000

Cash 110 19,950
Purchase Discount 511 1,050
Full payment
Use the following chart of accounts
Code Accounts Code Accounts

110 Cash 310 Zac, Capital
112 Accounts Receivable 410 Sales
114 Merchandise Inventory 510 Purchases
115 Office Supplies 511 Purchase Discounts
116 Furniture & Fixtures
210 Accounts Payable
211 Notes Payable
Answer sheet for Activity 1
POSTING TO GENERAL LEDGERS AND SUBSIDIARY LEDGERS
GENERAL LEDGERS
Account: CASH 110

BALANCE
DATE ITEMS REF. DEBIT CREDIT DEBIT CREDIT
88
Account: ACCOUNTS RECEIVABLE 112
BALANCE
Account: MERCHANDISE INVENTORY 114

BALANCE
Account: OFFICE SUPPLIES 115

BALANCE
Account: FURNITURE & FIXTURES 116

BALANCE
Account: ACCOUNTS PAYABLE 210

BALANCE
Account: NOTES PAYABLE 211

BALANCE
Account: ZAC, CAPITAL 310

BALANCE
89
Account: SALES 410
BALANCE
Account: PURCHASES 510

BALANCE
Account: PURCHASES DISCOUNT 511

BALANCE
Activity 2: Using the same data in activity 1, post transactions in the subsidiary ledgers for Accounts
Receivable and Accounts Payable.
Answer sheet for activity 2
SUBSIDIARY LEDGERS
Accounts Receivable-Zoe
BALANCE
ACCOUNTS PAYABLE-Zest
BALANCE
90
ACCOUNTS PAYABLE-Big A
BALANCE
Summary of Accounts Receivable Ledger: Summary of Accounts Payable Ledger:
Customer Amount Creditors Amount
Activity 3
Instruction: The following selected journal entries of Edna’s Trading for the month of June 2020, post to
the general ledgers.
Date Periodic
2020 5 Accounts Receivable- Larry 2450
Sales 2450
June
Sales on account.
9 Sales Returns and Allowances 500
Accounts Receivable 500
Customers return merchandise
12 Cash 1911
Sales Discount 39
Payment less discount and return.
14 Accounts Receivable-Henry 580
Sales 580
terms: 2/5, n/30.
14 Accounts Receivable –Bobby 600
Sales 600
Sales on account.
15 Purchases 5,000
Accounts Payable-Asia 5,000
Purchase on account
15 Accounts Payable-Asia 500
Cash 500
Partial payment
91
Activity 3: Answer sheet
Account : Cash 110

BALANCE
Date Items Ref. Debit Credit Debit Credit
Account : Accounts Receivable 112

BALANCE
Account : Accounts Payable 210

BALANCE
Account : Sales 410

BALANCE
92
Account : Sales Returns and Allowances 420
BALANCE
Account : Sales Discount 430
BALANCE
Account : Purchases 510

BALANCE
IV. REFLECTION
Rate yourself on how well understand the lesson. Please put a check about what you feel regarding each
parameter.
PARAMETERS
1. I know how to post transactions in

the General ledger.
_________ _________ _________
2. I know how to post transactions in

Subsidiary ledgers.
________ __________ _________
93
V. REFERENCES
Tugas, F. (2016). Fundamentals of Accountancy, Business, and Management 1. Quezon City: Vibal
Group, Inc.
Saturnino Yadao Ebusca, CPA,MBA,PhD. 2008. Bookkeeping for Servicing and Merchandising. Manila:
Rex Book Store.
Valencia, E. G. (2009). Basic Accounting. Baguio City: Valencia Educational Supply.
https://www.slideshare.net/annaseptiyani1/subsidiary-ledger-anna
Answer key
Answer key for Activity 1
94
WRITER
EDNA B. LOSITANO
T-III
Sto. Domingo National High School
95
Answer Key for activity 2
SUBSIDIARY LEDGERS
Answer key for activity 3
96
97
Name of Learner: _______________________________________ Grade Level: ________________

Section: ________________________________________ Date:_____________________________
LEARNING ACTIVITY SHEET (Q4 - Week 6)

Preparing the Trial Balance
After the recording and classifying phases, we now proceed to the summarizing phase. We
start off by preparing a trial balance. The trial balance is a list of accounts found in the ledger
together with the account’s balance or total at a given time. This is a proof that for every debit,
there is a corresponding credit. Hence, it is also a proof that the ledger is in balance.
The trial balance is prepared to check the equality of debits and credits. There is a need to
verify that debits are equal to credits to assure decision-makers that the financial statements and
reports that we issue have at least been checked for mechanical errors. Note that a balanced trial
balance only implies that total debit amount is the same as total credit amount, that the left side is
equal to the right side. It does not mean that the report is free from errors because an incorrect
analysis may still result to a balanced trial balance.
A trial balance is usually prepared after journalizing and posting have been made because these
are the steps more prone to errors. Errors which may be detected with the preparation of a trial
balance include: (a) incorrect placement of digits (transposition error), (b) incorrect placement of
decimal points (transplacement or slide error), (c) incorrectly copying the amounts from journal to
ledger and the balances from ledger to trial balance, (d) placing the amount in the incorrect column
of the trial balance, and (e) omitting an account in the trial balance.
To prepare a trial balance, account balances from the general ledger are copied and arranged
in financial statements order or based on account number. The trial balance normally includes
columns for the account number, account name, debit balance, and credit balance. Instead of
account number, any other identification code may be used.
The debit and credit columns are then totaled. These columns should have the same total
amount, otherwise there is a need to recheck the trial balance and the previous accounting
procedures to locate the discrepancy.
At this point, we continue with the exercises and show how accounts will be presented in the
trial balance.
98
I do hope that this activity sheet will help and guide you to attain and hit the expected
competency.
Good luck and Happy learning!
GENERAL LEDGERS
ACCOUNT: Cash Account No. 110
Balance
March 31 CR-1 16,386 16,386
March 31 CP-1 15,952.40 433.60

March 20 Sales on account SJ 6,750 6,750
24 Received return mdse. GJ-2 1,000 5,750
26 Allowance granted GJ-2 50 5,700
31 Cash received from Ms. Rivera CR-1 5,700 0

8 Return defective GJ-1 2,000 6,000
merchandise
10 Additional allowance GJ-1 120 5,880
14 Payment to Elegant CP-1 5,880 0
ACCOUNT: Sales Account No. 410

March-16 Cash sales CR-1 10,800 10,800
31 S-1 6,750 17,550
ACCOUNT: Sales Return Account No. 420

March 24 Received returned merchandise G J-1 1,000 1,000
99
ACCOUNT: Sales Allowances Account No. 430
March 26 Sales Allowance granted to Mr. L. GJ-1 50 50
Rivera.
ACCOUNT: Sales Discounts Account No. 440

March 31 Sales Allowance granted to Mr. L. Rivera. CR-1 114 114
ACCOUNT: Purchases Account No. 510

March 1 Cash purchases CP-1 10,000 10,000
31 Purchase on account P-1 8,000 18,000
ACCOUNT: Freight In Account No.520

March 3 Paid transportation. CP-1 120 120
ACCOUNT: Purchase Returns Account No.530

March 8 Returned defective merchandise GJ-1 2,000 2,000
ACCOUNT: Purchase Allowances Account No.540

March 10 GJ-1 120 120
ACCOUNT: Purchase Discounts Account No.560

March 14 Payment to Elegant Styles Merchandising CP-1 117.60 117.60
100
SUPER SALES STORE
Trial Balance
March 31, 2020
Account Title
Account No. Debit Credit
110 Cash 433.60

112 Accounts Receivable -
210 Accounts Payable -
410 Sales 17,550.00
420 Sales Return 1,000.00
430 Sales Allowances 50.00
440 Sales Discounts 114.00
520 Purchases 18,000.00
530 Freight In 120.00
540 Purchase Returns 2,000.00
550 Purchase Allowances 120.00
560 Purchase Discounts 117.60
570 Freight Out 70.00
TOTAL 19,787.60 19,787.60
LEARNING COMPETENCY
Prepares a Trial Balance (ABM_FABM11-IVe-j-38)
ACTIVITIES
General Instruction: Answer the following exercises and write it on a separate sheet of paper.
# 1. I Can Feel It!

Direction: Fill in the missing data to complete the Trial Balance of LMB Merchandising for the month
of January, 2021. Choose your answer from the box.
A. Cash 16,800 B. LMB Merchandising C. Freight-out 1,200 D. January 31, 2021
E. Accounts Receivable 6,600 F. Purchase Discounts 1,500 G. Purchases 75,000
H. Prepaid Insurance 800 I. Office Equipment 12,000 J. Total 199,200
K. LMB, Capital 26,600 L. Sales Returns and Allowances 13,000 M. Trial Balance
N. Accumulated Depreciation-Store Equipment 3,600 O. Accounts Payable 10,000
101
(1)_______________________
(2)_____________________________
(3)______________________________
Account Title
Debit Credit
(4)
(5)
Merchandise Inventory 16,500.00
(6)
Office Supplies 2000.00
Store Equipment 15,000.00
(7)
(8)
Accumulated Depreciation-
Office Equipment 3,000.00
(9)
(10)
LMB, Drawing 5,000.00
Sales 150,000.00
(11)
(12)
Freight-in
Purchase Returns &
Allowances
(13)
(14)
Rent Expense
Salaries Expense
Utilities Expense
(15) 199,200.00
# 2 . I Can Do It.
Direction: Prepare the Trial Balance of L. Company for the month of January, 2021 based from the
balances shown below in the general ledgers using T-accounts.
CASH 001
Jan-31 CR1 345,520.00 Jan-31 CD1 118,320.00

345,520.00 118,320.00
BALANCE 227,200.00
ACCOUNTS RECEIVABLE 031
Jan-31 S1 15,000.00 Jan-19 G1 1,000.00
31 CR1 10,000.00 20 G1 1,500.00
31 CR1 22,500.00
25,000.00 25,000.00
BALANCE 0.00
102
MERCHANDISE INVENTORY 041
Jan-31 CR1 50,000.00
50,000.00 -
BALANCE 50,000.00
STORE SUPPLIES 056

Jan-04 G1 4,000.00 Jan-05 G1 400.00
31 CD1 3,000.00 31 CR1 300.00
7,000.00 700.00
BALANCE 6,300.00
STORE EQUIPMENT 063
Jan-31 CD1 70,000.00 Jan-09 G1 3,500.00

31 CR1 2,500.00
70,000.00 6,000.00
BALANCE 64,000.00
ACCOUNTS PAYABLE 071

Jan-
05 G1 400.00 Jan-04 G1 4,000.00
09 G1 3,500.00 10 G1 11,000.00
15 G1 1,000.00 31 P1 15,000.00
16 G1 1,500.00 31 CR1 10,000.00
31 CD1 33,500.00 31 CD1 40,000.00
39,900.00 80,000.00
BALANCE 40,100.00
L. CAPITAL 101
Jan-
13 G1 12,000.00
31 CR1 340,000.00
- 352,000.00
BALANCE 352,000.00
L. DRAWING 102
Jan-31 G1 6,000.00
6,000.00 -
BALANCE 6,000.00
103
SALES 111
Jan-
31 S1 15,000.00
31 CR1 30,000.00
- 45,000.00
TOTAL 45,000.00
SALES RETURNS AND ALLOWANCES 112
Jan-19 G1 1,000.00
20 G1 1,500.00
31 CD1 500.00
3,000.00
TOTAL 3,000.00
SALES DISCOUNTS 113
Jan-31 CR1 280.00

280.00
TOTAL 280.00
PURCHASES 121
Jan-
Jan-13 G1 12,000.00 30 G1 6,000.00
31 P1 15,000.00
31 CD1 30,000.00
57,000.00 6,000.00
TOTAL 51,000.00
PURCHASE RETURNS AND ALLOWANCES 122
Jan-15 G1 1,000.00
16 G1 1,500.00
30 CR1 500.00
- 3,000.00
TOTAL 3,000.00
PURCHASE DISCOUNT 123

30 CD1 280.00
- 280.00
TOTAL 280.00
104
FREIGHT IN 125
Jan-31 CD1 800.00
800.00
TOTAL 800.00
UTILITIES EXPENSE 131

Jan-10 G1 11,000.00
11,000.00
TOTAL 11,000.00
RENT EXPENSE 133

Jan-31 CD1 20,000.00
20,000.00
TOTAL 20,000.00
FREIGHT OUT 139

Jan-31 CD1 800.00
800.00
TOTAL 800.00
GUIDE QUESTIONS
1. What is the correct heading?

2. What is the proper format of the trial balance?
3. How are you going to prepare the trial balance?
RUBRIC FOR SCORING
Criteria Good (1 point) Better (2 Points) Best (3 Points)

Completeness Able to give the Able to give the Able to give the
account number. account number and account number,
account title. account title and
amount.
Accuracy The given account The given account The given account
number is correct. number and account number, account
title are correct title, and amount
are all correct.
105
REFLECTION
Have you learned

something?
This Photo by
What do you feel about
topic?
This Photo
How do you find the
lesson?
This Photo by
Tugas, F. C. et. Al (2016). Fundamentals of Accountancy, Business, and Management 1.

Ong, F.L. (2016). Fundamentals of Accountancy, Business, and Management 1 for Senior High School
https://www.youtube.com/watch?v=3_PfoTzSCQE
106
ANSWER KEY
# 1. I Can Feel It!
107
# 2. I Can Do It!
Prepared by:
LOURDES M. BATALLER, T-II

Pili National High School
Writer
108
Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4-Week 7a

Preparing Adjusting Entries on Merchandising Business
I. BACKGROUND INFORMATION FOR LEARNERS

In this learning activity sheet, we are going to learn on how to prepare adjusting
entries. Accounts may be also classified into real, nominal and mixed before the books of
accounts are adjusted at the end of the accounting period. Asset, liability and capital accounts
are known as Real accounts while expense and income accounts are called Nominal
accounts. If the accounts contain both real and nominal elements, these are known as Mixed
accounts. Mixed accounts are adjusted at the end of the period so that their balances become
either purely real accounts or purely nominal accounts. It should be noted that only real and
nominal accounts exist after the account have been adjusted while the real and nominal
elements in the mixed accounts have been recorded in separate accounts.
Adjusting Entries are entries that are prepared in order to generate correct data at the
end of the accounting period. These are then recorded in the general journal and posted to
the ledger accounts so that information in the accounts will then be brought to correct
balances. Adjusting entries are done to be able to depict sensible financial statements. Some
of the common adjusting entries that need to be done at the end of the accounting period are
the following:
a. adjusting entry for prepaid expenses; d. adjusting entry for accrued revenue;
b. adjusting entry for accrued expenses; e. adjusting entry for bad debts expense/ doubtful accounts expense; and
c. adjusting entry for deferred revenue; f. adjusting entry for depreciation expense.
MERCHANDISING INVENTORY AT THE END OF THE PERIOD
At the end of the period, entries are made to reflect in the inventory account the ending
balance. The objectives of these entries are as follow:
a. to remove the beginning balance from merchandise inventory account and to transfer it to income
summary.
b. to enter the ending balance in the merchandising inventory account and to establish it in the income
summary.
The attainment of the objective is illustrated using the figures from G. Detoya Traders:
Merchandise Inventory
Jan. 1 beginning Balance 528,000 Dec. 31 Effect A (Beginning Balance) 528,000
Dec. 31 Effect B (Ending Balance) 483,000
109
Income Summary
Dec. 31 Effect A 528,000 Dec. 31 Effect B 483,000
In this example, merchandising inventory was P 528,000 at the beginning of the year and P
483,000 at the end of the year. Effect A remove the P 528,000 from the merchandise inventory account
and transferred in to income summary. In income summary, the P 528,000 is in effect added to net cost
of purchases because, like expenses, the balance of the purchases account is debited to income
summary by a closing entry.
Effect B established the ending balance of merchandise inventory of P 483,000 and entered it
as a credit in the income summary account. The credit entry in income summary has effect of deducting
the ending inventory from goods available for sale because both purchase and beginning inventory are
entered on the debit side. To summarize, beginning merchandise inventory and purchases are debts to
income summary; while ending merchandise inventory is a credit to income summary.
Thus, the objectives stated above are accomplished if effects A and B concurred. The
questions then arise as to how to achieve these effects. Two acceptable method are available – the
adjusting entry method and the closing entry method. Each method produces exactly the same result.
THE ADJUSTING ENTRY METHOD
Using the adjusting entry method, the two entries indicated by effect A and B which are
prepared at the time the other adjusting entries are made follow:
Dec 31 Income Summary 528,000

Merchandise Inventory, Beginning 528,000
To remove beginning balance of
merchandise inventory and transfer it
to income summary
Dec 31 Merchandise Inventory, End 483,000

Income Summary 483,000
To establishing ending balance of
merchandise inventory and deduct it
from goods available for sale in
income summary.
110
THE CLOSING ENTRY METHOD
The closing entry method makes the debit and the credit to merchandise inventory by
including them among the closing entries as follows:
Dec 31 Income Summary xxx

Temporary Accounts with Debit Balance xxx
To close temporary accounts with debit
balance and to remove beginning
inventory.

Temporary Accounts with Credit Balance xxx
Income Summary xxx
To close temporary accounts with credit
balance and to establish ending
inventory.
Notice that in both methods, merchandise inventory is credited for the beginning balance and
debited for the ending balance and that the opposite entries are made to income summary.
ADJUSTING JOURNAL ENTRIES
Virginia Company
December 31, 2021
Cash P 90,000
Accounts Receivable 45,000
Merchandise Inventory 95,000
Property, Plant and Equipment 100,000
Account Payable P 35,000
Unearned Revenue 10,000
Notes Payable 50,000
Virginia, Capital 215,000
Sales 200,000
Cost of Goods Sold 70,000
Interest Expense 6,500
Rent Expense 13,500
Salary Expense 65,000 200,000
Totals 510,000 510,000
The total debits and credit should tally with each other. If the totals do not agree, the error/s
must be detected and corrected prior to nest step of the accounting process.
Error may either be:
1. Failure to Record/Omission – no journal entry was made for a transaction
2. Transposition – numbers are interchanged.
111
Ex. A debit of 8,450 has been incorrectly credited as 8,405.
3. Original Entry Errors – data is inputted incorrectly
Ex. The clerk inputted sales worth 100,000 as 1,000
PREPARING AN ADJUSTED TRIAL BALANCE
The adjusted trial balance generated, however does not contain all the correct information as
adjusting entries, which are generally made at the end of the year, have not been incorporated. We first
journalized adjusting entry items such as prepayment, accruals and deferral. These adjustments are
then inputted into the worksheet to introduce the changes and untimely arrive at the adjusted trial
balance which has updated account values as per the year-end amounts.
Supposed the following data during the year 2021 for Virginia Company.
a. Accrued and unpaid salaries of employees amounted to P 15,000.
b. Cash deposited on the bank generated an interest worth P 600.
c. Unearned sales P 7,000 have been earned.
d. The prepaid insurance figure represents the cash payment for the 5-year insurance
premium contract. This was purchased at the beginning of the year.
e. Beginning Inventory is P 65,000.00
Adjusting Journal Entries
a. Accrued and unpaid salaries of employees amounted to P 15,000.
Salary Expense 15,000

Salary Payable 15,000
b. Cash deposited on the bank generated an interest worth P 600.
Interest Receivable 600

Interest Income 600
c. Unearned sales P 7,000 have been earned.
Unearned revenue 7,000

Sales 7,000
d. The prepaid insurance figure represents the cash payment for the 5-year insurance premium
contract. This was purchased at the beginning of the year.
insurance Expense 5,000

Prepaid insurance 5,000
e. To adjust merchandise inventory. (Beg. P65,000)
Dec 31 Income Summary 65,000

112
Virginia Company
Adjusted Trial Balance
December 31, 2021
Unadjusted Adjustments Adjusted
Debit Credit Debit Credit Debit Credit

Cash P 90,000 P 90,000
Accounts Receivable 45,000 45,000
Interest Receivable 600 600
Merchandise 95,000
95,000
Inventory
Prepaid Insurance 25,000 5,000 20,000
Property, Plant and 100,000
100,000
Equipment
Account Payable P 35,000 35,000
Salaries payable 15,000 15,000
Unearned Revenue 10,000 7,000 3,000
Notes Payable 50,000 50,000
Virginia, Capital 215,000 215,000
Sales 200,000 7,000 207,000
Cost of Goods Sold 70,000 70,000
Interest Expense 6,500 6,500
Rent Expense 13,500 13,500
Salary Expense 65,000 15,000 80,000
Insurance Expense 5,000 5,000
Other Income 600 600
(Interest Income)
Totals 510,000 510,000 27,600 27,600 525,600 525,600
LEARNING COMPETENCY
➢ The learner prepares the adjusting entries. ABMFABM11-IVe-j – 39
ACTIVITIES
Activity 1: The beginning and ending merchandise inventories for M. Villon Company for year
ended December 31, 2021 are as follows:
Merchandise Inventory, 1/1/21 P 300,000

Merchandise Inventory, 12/31/21 230,000
Required:
Prepare the adjusting entries to update the merchandise inventory account as at
December 31, 2021.
Particulars Debit Credit
113
Activity 2: The adjusted trial balance of the C. Leung Company as December 31, 2021 appears
below:
C. Leung Company
December 31, 2021
Cash P 100,000
Merchandising Inventory 700,000
Prepaid Rent 300,000
Equipment 1,600,000
Accumulated Depreciation P 200,000
Account Payable 400,000
Leung, Capital 1,300,000
Leung, Withdrawals 100,000
Sales 2,900,000
Sales Discount 100,000
Purchases 800,000
Purchases Return and Allowances 200,000
Transportation In 100,000
Salaries Expense 400,000
Advertising expense 150,000
Utilities Expense 100,000
Supplies Expense 50,000
Totals 5,000,000 5,000,000
Additional Information:
a. Accrued salaries at year-end amounted to P 30,000.

b. Rent in the amount of P 100,000 has expired during the year
c. Depreciation on shop equipment is P 200,000.
d. The Dec. 31 merchandise inventory amounted to P 500,000.
Required:
Prepare the adjusting entries to update the merchandise inventory account as at
December 31, 2021.
a.
b. .
114
c.
d.
Activity 3: Using the unadjusted trial balance of C. Leung Company, enter the adjustment and
prepare the adjusted trial balance below.
Unadjusted Trial Adjusted Trial

C. Leung Company Adjustments
Balance Balance
Cash P 100,000
Merchandising
700,000
Inventory
Prepaid Rent 300,000
Equipment 1,600,000
Accumulated
P 200,000
Depreciation
Account Payable 400,000
Leung, Capital 1,300,000

Leung, Withdrawals 100,000
Sales 2,900,000
Sales Discount 100,000
Purchases 800,000
Purchases Return and Allowances 200,000
Transportation In 100,000
Advertising expense 150,000
Supplies Expense 50,000
Totals 5,000,000 5,000,000
115
REFLECTION
Reflect on the activities you have done.

After doing the activities:
I learned _________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
____________________________.
A question I have is
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
I’m not sure _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________
I realized_________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
116
W. Ballada,. Fundamentals of Accountancy, Business, and Management, DomDane Publishers
Conrado T. Valix, Basic Accounting Made Easy 2019 Edition
Florenz C. Tugas, Fundamentals of Accountancy, Business and Mathematics 1, Vibal Publishing, Inc
Teaching Guide for SHS Fundamentals of Accountancy, Business and Management.
Benedick Manalaysay, Fundamentals of Accountancy, Business and Mathematics 1,Anvil Publishing, Inc
Macapugay, Notes in Bookkeeping
ANSWER KEY
Activity 1:
Merchandise Inventory, Beg. 300,000
Merchandise Inventory, End 230,000

Activity 2:
a.
Salary Expense P 30,000
Salary Payable P 30,000
b.
Rent Expense P 100,000
Prepaid Rent P 100,000
c.
Depreciation Expenses P 200,000
Accumulated Depreciation P 200,000
d.
Income & expense Summary P 700,000
Merchandise Inventory P 700,000
Merchandise Inventory P 500,000

Income & expense Summary P 500,000
117
Activity 3:
Unadjusted Trial Adjusted Trial

C. Leung Company Adjustments
Balance Balance
Cash P 100,000 P 100,000
Accounts
500,000 500,000
Receivable
Merchandising Inventory 700,000 700,000
Prepaid Rent 300,000 P 100,000 200,000
Equipment 1,600,000 1,600,000
Accumulated Depreciation P 200,000 200,000 P 400,000
Account Payable 400,000 400,000
Accrued Salaries Expense 30,000 30,000
Leung, Capital 1,300,000 1,300,000
Leung, Withdrawals 100,000 100,000
Sales 2,900,000 2,900,000
Sales Discount 100,000 100,000
Purchases 800,000 800,000
Purchases Return and
Allowances 200,000 200,000
Transportation In 100,000 100,000
Salaries Expense 400,000 P 30,000 430,000
Advertising expense 150,000 150,000
Utilities Expense 100,000 100,000
Supplies Expense 50,000 50,000
Rent Expense 100,000 100,000
Depreciation Expense 200,000 200,000
Totals 5,000,000 5,000,000 330,000 330,000 5,230,000 5,230,000
Prepared By:
MA. CEAZARE D. BARNUEVO, MM

SHS – ABM
Cotmon National High School
118
Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4

WORKSHEET PREPARATION
A work sheet is a document that is used internally by companies to help with adjusting and closing
accounts and with preparing financial statements. It is not a permanent accounting record. It is
neither a journal nor a part of the general ledger. The worksheet is merely a device used in preparing
adjusting entries and the financial statements. It is an internal accounting aid and is not a substitute
for journals, ledgers, or financial statements. A work sheet:
• Helps in preparing financial statements.
• Reduces the risk of errors when working with many accounts and adjustments.
• Links accounts and adjustments to financial statements.
• Shows the effects of proposed or “what-if” transactions.
LEARNING COMPETENCY
Prepares worksheet ABM_FABM11-IVe-j-39b
When a work sheet is used to prepare financial statements, it is constructed at the end of a period
before the adjusting process. The complete work sheet includes a list of the accounts, their balances
and adjustments, and their sorting into financial statement columns. It provides two columns each for
the unadjusted trial balance, the adjustments, the adjusted trial balance, the income statement, and
the balance sheet (including the statement of owner’s equity). Preparing the worksheet has five (5)
steps:
Step 1. Enter Unadjusted Trial Balance

Refer to the illustration—green section. The first step in preparing a work sheet is to list the title of
every account and its account number that appears on its financial statements. This includes all
accounts in the ledger plus any new ones from adjusting entries. The unadjusted balance for each
account is then entered in the correct Debit or Credit column of the unadjusted trial balance columns.
The totals of these two columns must be equal.
Step 2. Enter Adjustments

Refer to the illustration—yellow section. The second step is to enter adjustments in the Adjustments
columns. An identifying letter links the debit and credit of each adjustment. The term used to describe
this process is keying. Companies do not journalize the adjustments until after they complete the
worksheet and prepare the financial statements. After preparing a work sheet, adjustments must
still be entered in the journal and posted to the ledger. The Adjustments columns provide the
information for adjusting entries in the journal.
Step 3. Prepare Adjusted Trial Balance

Refer to the illustration—blue section. The adjusted trial balance is prepared by combining the
adjustments with the unadjusted balances for each account. As an example, the Prepaid Insurance
119
account has a 2,400 debit balance in the Unadjusted Trial Balance columns. This 2,400 debit is
combined with the 100 credit in the Adjustments columns to give Prepaid Insurance a 2,300 debit in
the Adjusted Trial Balance columns. The totals of the Adjusted Trial Balance columns confirm debits
and credits are equal. If the column totals do not agree, the financial statement columns will not
balance and the financial statements will be incorrect. For each account, the amount in the adjusted
trial balance columns is the balance that will appear in the ledger after journalizing and posting the
adjusting entries.
Step 4. Sort Adjusted Trial Balance Amounts to Financial Statements

Refer to the illustration—orange section. This step involves sorting account balances from the
adjusted trial balance to their proper financial statement columns. Expenses go to the Income
Statement Debit column and revenues to the Income Statement Credit column. Assets and
120
withdrawals go to the Balance Sheet & Statement of Owner’s Equity Debit column. Liabilities and
owner’s capital go to the Balance Sheet & Statement of Owner’s Equity Credit column.
Step 5. Total Statement Columns, Compute Income or Loss, and Balance Columns
Refer to the illustration—purple section. Each financial statement column (from step 4) is totaled. The
net income or loss for the period is the difference between the totals of the two income statement
columns. If total credits exceed total debits, the result is net income. In such a case, the company
inserts the words “Net Income” in the account titles space. It then enters the amount in the income
statement debit column and the balance sheet credit column. The debit amount balances the income
statement columns; the credit amount balances the balance sheet columns. In addition, the credit
in the balance sheet column indicates the increase in owner’s equity resulting from net income.
What if total debits in the income statement columns exceed total credits? In that case, the company
has a net loss. It enters the amount of the net loss in the income statement credit column and the
balance sheet debit column. After entering the net income or net loss, the company determines new
column totals. The totals shown in the debit and credit income statement columns will match. So will
the totals shown in the debit and credit balance sheet columns. If either the income statement
columns or the balance sheet columns are not equal after the net income or net loss has been entered,
there is an error in the worksheet.
121
ACTIVITY
ACTIVITY 1. THE MISSING LINK

In the illustration below, the first two columns contain the unadjusted trial balance for the
company as of December 31, and the last two columns contain the adjusted trial balance as of the
same date.
Analyze the differences between the unadjusted and adjusted trial balances to determine the
adjustments that likely were made. Show the results of your analysis by inserting these adjustment
amounts in the table’s two middle columns.
122
ACTIVITY 2. STRETCH OF THE IMAGINATION
Using the information in the adjusted trial balance, prepare this company’s income statement
and its statement of owner’s equity for the year ended December 31 by sorting account balances from
the adjusted trial balance to their proper financial statement columns and computing the totals.
123
ACTIVITY 3. GOING ALL THE WAY
The following work sheet contains the year-end unadjusted trial balance for Magic Company,
Inc. as of December 31. Complete the work sheet by entering the necessary adjustments, computing
the adjusted account balances, extending the adjusted balances into the appropriate financial
statement columns, and entering the amount of net income for the period. Note: The Magic, Capital
account balance was 75,000 at December 31 of the prior year.
ACTIVITY 3.
ACTIVITY 3. GOING ALL
GOING ALL THE
THE WAY
WAY
1. Prepare and complete the work sheet, starting with the unadjusted trial balance and including
adjustments based on the following.
a. The company has earned 9,000 in fees that were not received or recorded at year-end.
b. The company incurred 2,000 in salary expense that was not yet recorded or paid at year-end.
Hint: Assume it records salary not yet paid as part of accounts payable.
c. The long-term note payable was issued on December 31 this year. Thus, no interest has yet
accrued on this loan.
REFLECTION
Complete the following sentences:
1. Worksheet preparation is fun when

________________________________________________________________________.
2. The most challenging part of worksheet preparation is
________________________________________________________________________.
Wild, J.J. & Shaw, K.W., (2019). Fundamental Accounting Principles, 24th Edition. McGraw
Hill. 129 - 131
124
ANSWER KEY
WRITER
ROSS ALDEN A. BIGTAS

ANISLAG NATIONAL HIGH SCHOOL
125
Name: ________________________________________ Grade Level: _________________

Strand and Section: _____________________________ Date: _______________________
LEARNING ACTIVITY SHEET Q4 Week 8

COMPLETING THE ACCOUNTING CYCLE OF A MERCHANDISING BUSINESS
From the previous learning activity sheets, you learned how to journalize financial
transactions, post these transactions to the ledger, prepare trial balance and prepare adjusting entries
of a merchandising business. Now, it is time for you to apply those skills and complete the accounting
cycle!
In this learning activity sheet, you will learn further about the accounting cycle and perform
all the steps or procedures related to it.
THE ACCOUNTING CYCLE
The accounting cycle is a continuous process of accumulating, summarizing and reporting

financial information. It is a series of steps performed to accomplish the accounting process.
Figure 1: Accounting Cycle
This cycle is repeated each accounting period. It starts from identifying the financial
transactions to be recorded in the books of a firm down to closing the books at the end of the period.
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SAMPLE TRANSACTION
The one-month transactions of Super Sales Store will be used for the discussion of the accounting
cycle. Read them carefully for you to identify and measure the transactions for recording.
The following are the transactions incurred by Super Sales Store during its first month of
operation in March 2018:
March 1 Owner invested Php 100,000 cash in the name of the business.
2 Bought merchandise for cash, Php 10,000.
2 Paid the transportation for the merchandise purchased on July 2, Php 120.
3 Purchased office supplies for cash, Php 5,000.
5 Bought merchandise on account from Elegant Store, Php 8,000.
5 Paid advertising for the month, Php 500.
7 Returned some defective merchandise worth Php 2,000 to Elegant Store.
Received additional allowances from Elegant Store worth Php 120 for the
8
merchandise bought from them.
11 Paid the on account to Elegant Store. The supplier granted Php 117.60 discount.
12 Sold merchandise for cash, Php 10,800. The cost of merchandise is Php 7,907.40.
Sold merchandise on account to Ms. Rivera, Php 6,750. The cost of merchandise is
14
Php 5,000.
15 Paid Php 70 for the delivery of the merchandise sold on July 14.
15 Paid salary of employee, Php 750.
Received returned merchandise from Ms. Rivera worth Php 1,000. The cost of
18
merchandise returned is Php 740.
19 Granted an allowance to Ms. Rivera, Php 50.
Received payment from the on account of Ms. Rivera. Super Sales Store granted a
25
discount of Php 114.
Sold merchandise on account to Ms. Reyes for Php 2,000. The cost of merchandise
28
sold is Php 1,500.
30 Owner withdrew Php5,000 cash from the business.
Adjustments:
a. Utilities worth Php 1,000 have accrued on March 31.
b. Salary of employee have accrued on March 31, Php 750.
c. Supplies on hand at month-end amounted to Php 4,200.
d. Merchandise inventory at the end of the month amounted to Php 2,215.
1. IDENTIFYING TRANSACTIONS
The first step in the accounting cycle is to identify the transactions to be recorded in the books
of the firm. At this stage, the documents used by the business are analyzed to see whether these
transactions have financial impact or effect. Recall the rule that only financial transactions are
127
recorded and that the amount can be measured. These two conditions must exist in order for a
particular transaction to be recognized or recorded.
In the given example, all the transactions incurred by Super Sales Store have financial impact
on the business, thus, must be recorded.
2. JOURNALIZING TRANSACTIONS
Once the financial transactions are identified, the next step is to journalize these transactions,
in the order in which they occur, to the general journal.
In merchandising business, the merchandise inventory is the key factor in determining cost of
sales. There are two systems available to merchandising entities to record events related to
merchandise inventory: the periodic inventory system and perpetual inventory system. Below is a
comparative illustration of these systems based on Super Sales Store’s transactions.
Date Periodic Inventory System Perpetual Inventory System

2018 Cash Php 100,000 Cash Php 100,000
Mar Capital Php 100,000 Capital Php 100,000
1 Initial investment by the owner Initial investment by the owner
Purchases 10,000 Merchandise Inventory 10,000
2 Cash 10,000 Cash 10,000
Bought merchandise for cash Bought merchandise for cash
Freight-In 120 Merchandise Inventory 120
2 Cash 120 Cash 120
Paid transportation Paid transportation
Supplies 5,000 Supplies 5,000
3 Cash 5,000 Cash 5,000
Bought office supplies Bought office supplies
Purchases 8,000 Merchandise Inventory 8,000
5 Accounts Payable 8,000 Accounts Payable 8,000
Bought merchandise on account Bought merchandise on account
Advertising Expense 500 Advertising Expense 500
5 Cash 500 Cash 500
Paid advertising for the month Paid advertising for the month
Accounts Payable 2,000 Accounts Payable 2,000
7 Purchase Returns 2,000 Merchandise Inventory 2,000
Returned defective merchandise Returned defective merchandise
Accounts Payable 120 Accounts Payable 120
8 Purchase Allowances 120 Merchandise Inventory 120
Received additional allowances Received additional allowances
Purchase Discount 117.60
11 117.60
Cash 5,762.40
Cash 5,762.40
Paid the on account to Elegant Store
Paid the on account to Elegant Store
128
Cash 10,800 Cash 10,800
Sales 10,800 Sales 10,800
Sold merchandise for cash Sold merchandise for cash
12
Cost of Sales 7,907.40
Merchandise Inventory 7,907.40
Cost of merchandise sold
Accounts Receivable 6,750 Accounts Receivable 6,750
Sold merchandise on account Sold merchandise on account
14
Cost of Sales 5,000
Cost of merchandise sold
Freight-Out 70 Freight-Out 70
15 Cash 70 Cash 70
Paid transportation Paid transportation
Salaries Expense 750 Salaries Expense 750
15 Cash 750 Cash 750
Paid salary of employee Paid salary of employee
Sales Returns 1,000 Sales Returns 1,000
Received returned merchandise Received returned merchandise
18
Merchandise Inventory 740
Cost of Sales 740
Cost of merchandise returned
Sales Allowances 50 Sales Allowances 50
19 Accounts Receivable 50 Accounts Receivable 50
Allowance granted Allowance granted
Cash 5,586 Cash 5,586
Sales Discount 114 Sales Discount 114
25
Payment received Payment Received
Sold merchandise on account Sold merchandise on account
28
Cost of Sales 1,500
Cost of merchandise
Drawing 5,000 Drawing 5,000
30 Cash 5,000 Cash 5,000
Cash drawing by the owner Cash drawing by the owner
Journalizing transactions under the two systems is the same except for the transactions
involving the purchase and sale of merchandise. Under the periodic inventory system, the
transactions related to the purchase of merchandise such as freight-in, purchases, purchase discounts,
and purchase returns and allowances are recorded under separate account titles while in perpetual
inventory system, all of these accounts are recorded under the merchandise inventory account. For
the sale of merchandise, the cost of sales and merchandise inventory are continuously updated under
the perpetual inventory system.
4
129
3. POSTING TRANSACTIONS TO THE LEDGER
From the recorded transactions in the general journal, these entries will now be posted in the
ledger.
130
131
You may observe above that the ending merchandise inventory and cost of sales are already
determined after posting under the perpetual inventory system while these balances remain
unavailable at this stage under the periodic inventory system. In periodic inventory system, cost of
goods sold is determined only at the end of an accounting period.
4. PREPARING UNADJUSTED TRIAL BALANCE
After posting transactions, prepare the unadjusted trial balance to test the equality of the
debits and credits in the ledger. Enter the balances of each account from the ledger to the trial
balance. List the accounts in numerical order or in their order in the chart of account. Also, real or
permanent accounts are listed before the nominal or temporary accounts.
Periodic Inventory System Perpetual Inventory System
132
5. PREPARING WORKSHEET
Worksheet aids in the preparation of financial statements. It provides an efficient way to

summarize data. It is generally prepared when it is time to adjust the accounts and prepare
financial statements. The satisfactory completion of a worksheet provides assurance that all the
details of the end-of-period accounting procedures were properly brought together.
Here are the steps in preparing the worksheet:
1. Enter the balances in the unadjusted trial balance

columns and total the amounts.
2. Enter the adjusting entries in the adjustments

columns and total amounts.
3. Compute each account's adjusted balance by combining the

unadjusted trial balance and the adjustment figures. Enter the
adjusted amount in the adjusted trial balance columns.
4. Extend the asset, liability and owner's equity amounts from

the adjusted trial balance columns to the balance sheet
columns. Extend the income and expense amounts to the
income statement columns.Total the statement columns.
The worksheet can be completed once the adjusting entries are journalized and posted. (See
page 10 for completed worksheet of Super Sales Store)
Sample Worksheet: Periodic Inventory System

Super Sales Store
Worksheet
For the month ended March 31, 2018
Unadjusted Trial
Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Balance
Account Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 89,183.60
Supplies 5,000
Utilities Payable
Salaries Payable
Capital 100,000
Drawing 5,000
Sales 19,550
Sales Returns 1,000
Sales Allowances 50
Sales Discount 114
Purchases 18,000
Purchase Returns 2,000
Purchase Allowances 120
Freight-In 120
Freight-Out 70
Advertising Expense 500
Salaries Expense 750
Utilities Expense
Supplies Expense
121,787.60 121,787.60
133
6. PREPARING ADJUSTING ENTRIES
Adjustments are needed to ensure that the revenue recognition and expense recognition
principles are followed thus resulting to financial statements reporting the effects of all transactions
at the end of the period. Adjusting entries involve changing account balances at the end of the period
from what is the current balance to what is the correct balance for proper financial reporting.
Super Sales Stores’ adjustments for the month are:
a. Utilities worth Php 1,000 have accrued on March 31.

b. Salary of employee have accrued on March 31, Php 750.
c. Supplies on hand at month-end amounted to Php 4,500.
d. Merchandise inventory at the end of the month amounted to Php 2,215.
The adjusting entries for Super Sales Store are as follows:

Date Periodic Inventory System Perpetual Inventory System
Utilities Expense Php 1,000 Utilities Expense Php 1,000
a. Utilities Payable Php 1,000 Utilities Payable Php 1,000
Accrued utilities for the month Accrued utilities for the month
Salaries Expense 750 Salaries Expense Php 750
b. Salaries Payable 750 Salaries Payable Php 750
Accrued salary Accrued salary
Supplies Expense 500 Supplies Expense 500
c. Supplies 500 Supplies 500
Used supplies for the month Used supplies for the month
d. Income Summary 2,215 No entry required
Ending merchandise inventory
After journalizing the adjusting entries, these entries are then posted to the ledger.
Sample Illustrations:
Adjustment (b).
Account: Salaries Expense Balance
Mar 15 Paid salary 750 750
31 Adjustment (b) 750 1,500
Account: Salaries Payable Balance

Mar 31 Adjustment (b) 750 750
The merchandise inventory account’s balance may be updated with adjusting entries or as
a part of the closing entries. When adjusting entries are used, two separate entries are made.
For Super Sales Store, the beginning merchandise inventory is zero because the business is in its
first month of operation.
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PERIODIC INVENTORY SYSTEM
PERPETUAL INVENTORY SYSTEM
135
7. PREPARING FINANCIAL STATEMENTS
Using the information from the worksheet, the financial statements are then prepared. Financial
statements include the income statement, balance sheet, owner’s equity and cash flow.
▪ Statement of Financial Position (SFP) - Also known as the balance sheet. This statement
includes the amounts of the company’s total assets, liabilities and owner’s equity which in
totality provides the financial position of the company on a specific date.
▪ Statement of Comprehensive Income (SCI) – Also known as the income statement, it

contains the results of the company’s operations for a specific period of time. This can be
prepared on a monthly, quarterly or yearly basis.
▪ Statement of Changes in Equity (SCE) – Also known as statement of owner’s equity. All
changes, whether increases or decreases to the owner’s interest on the company during the
period, are reported here.
▪ Statement of Cash Flow – This provides an analysis of inflows and/or outflows of cash
from/to operating, investing and financing activities.
The first statement prepared is the income statement. In the worksheet, all income statement
accounts are extended to the appropriate column. Using the periodic inventory system, the
beginning balance of merchandise inventory account is also extended to the debit side, while the result
of the physical count to determine the ending inventory is reflected on the credit side. The total debit
and total credit are determined and if credit balance is higher than the debit side, the difference is
added to the debit side. The difference is actually the income for the period. However, if the total
debit side exceeds the total credit side, the difference is added to the credit side and this is the net
loss of the business.
136
In the income statement of Super Sales Store, the credit side is higher than the debit side.
Thus, the difference of Php 1,148.60 is an income for the period and is added to the debit side.
The proper format for the income statement for merchandising business is presented below:
Income Statement
Net Sales xxx
Less: Cost of Sales (xxx)
Gross Profit xxx
Less: Operating Expenses (xxx)
Net Income xxx
Super Sales Store

Income Statement
Net Sales
Gross sales Php 19,550
Less: Sales Returns (1,000)
Sales Allowances (50)
Sales Discount (114)
Net Sales Php 18,386
Cost of Sales
Merchandise Inventory, Beginning Php 0
Purchases 18,000
Less: Purchase Returns (2,000)
Purchase Allowances (120)
Purchase Discount (117.60)
Net Purchases 15,762.40
Freight-In 120
Goods Available for Sale 15,882.40
Less: Merchandise Inventory, Ending 2,215
Cost of Sales Php 13,667.40
Gross Profit Php 4,718.60
Operating Expenses
Freight-Out Php 70
Advertising Expenses 500
Supplies Expense 500
Total Operating Expenses Php 3,570
Net Income/Profit Php 1,148.60
137
The income statement under perpetual inventory system is the same to that of the periodic
inventory system. Only that, the cost of sales no longer needs to be computed because it is readily
available after posting. It is determined by getting the running balance of the account in the ledger.
The balance sheet is then prepared. All assets, liabilities and equity accounts are extended.
The ending merchandise inventory is extended to the debit side.
The proper format for balance sheet is shown below:
Super Sales Store

Balance Sheet
Assets
Cash Php 89,183.60
Supplies 4,500
Total Assets Php 97,898.60
Liabilities and Owner’s Equity
Liabilities
Utilities Payable Php 1,000
Salaries Payable 750
Total Liabilities Php 1,750
Owner’s Equity
Capital, 07/01/2019 Php 100,000
Add: Profit 1,148.60
Total 101,148.60
Less: Drawing (5,000)
Capital, 07/31/2019 Php 96,148.60
Total Liabilities and Owner’s Equity Php 97,898.60
Super Sales Store

Statement of Owner’s Equity
Capital, 07/01/2019 Php 100,000

Add: Profit 1,148.60
Total 101,148.60
Less: Drawing (5,000)
Capital, 07/31/2019 Php 96,148.60
138
Super Sales Store
Statement of Cash Flow
Operating activities
Cash received from customers Php 16,386
Cash paid to employees (750)
Cash paid for office supplies (5,000)
Cash paid for advertising (500)
Cash paid for transportation (190)
Net cash used in operating activities Php (5,816.40)
Investing Activities –
Financing Activities
Owner’s contributions 100,000
Owner’s drawings (5,000)
Net cash flow from financing activities Php 95,000
Net change in cash Php 89,183.60
Cash, July 1, 2019 –
Cash, July 31, 2019 Php 89,183.60
All the information needed for the preparation of cash flow can be found on the cash account
in the ledger. Cash received from customers and cash payments incurred during the operation of the
business are included under operating activities. Investments such as purchase and selling of fixed
assets are included in investing activities. For financing activities, it includes cash received as
investments by the owner, cash received from borrowings, and payments for drawing of the owner.
The ending cash balance in the statement of cash flow must be equal to the ending balance of the cash
account in the ledger.
8. CLOSING THE BOOKS
The closing journal entries consist of the following:

• Closing nominal or temporary revenue accounts. Debit Revenue and credit Income
Summary.
• Closing nominal or temporary expense accounts and cost of goods sold. Debit Income
Summary and credit Expense.
• Closing the Merchandise Inventory, Beginning. Debit Income Summary and credit
Merchandise Inventory.
• Establishing the Merchandise Inventory, Ending. In the periodic inventory system,
physical count of the inventory at the end of the reporting date must be done. The amount
that will be used in recording the ending merchandise inventory is the result of the
139
physical count. To establish ending inventory, debit to Merchandise Inventory-Ending and
a credit to Income Summary.
• Closing of Income Summary account to Capital. If there is a net profit, the entry will be a
debit to Income Summary and a credit to owner’s Capital account. If there is net loss, debit
Owner’s Capital and credit Income Summary.
• Closing of Drawing Account. Debit owner’s Capital and credit owner’s Drawing.
The closing entries for Super Sales Stores are:
General Journal
2018
March 31 Sales 19,550
Sales Returns Php 1,000
Sales Allowances 50
Sales Discount 114
To close nominal revenue accounts
31 Income Summary 19,452.40

Purchase Returns 2,000
Purchase Allowances 120
Purchases 18,000
Freight-In 120
Freight-Out 70
To close nominal expense and cost of
goods sold account accounts

Capital 1,148.60
To close the income summary account
31 Capital 5,000
Drawing 5,000
To close the withdrawal account
Note: The Merchandise Inventory, Ending was already established when adjusting entries were
prepared. Adjusting Entry Method was used to record the ending inventory.
140
PERPETUAL INVENTORY SYSTEM
General Journal
2018
March 31 Sales Php 19,550
Sales Returns Php 1,000
Sales Allowances 50
Sales Discount 114

Cost of sales 13,667.40
Freight-Out 70

Capital 1,148.60
31 Capital 5,000
Drawing 5,000
Once the closing journal entries have been entered into the general journal, the information
should be posted to the general ledger. When this is accomplished, all of the nominal accounts in the
general ledger should have zero balances. To double check on this, prepare another trial balance
based on the new balances in the general ledger. If there are any nominal accounts with positive
balances, a mistake was made along the way and will need to be corrected before proceeding to the
next accounting period.
Super Sales Store
Post-Closing Trial Balance
Debit Credit
Cash Php 89,183.60
Supplies 4,500
Utilities Payable Php 1,000
Salaries Payable 750
Capital 96,148.60
Total Php 97,898.60 Php 97,898.60
141
LEARNING COMPETENCY WITH CODE
Complete the accounting cycle of a merchandising business (ABM_FABM11-IVe-j-40).
ACTIVITY
COMPLETE THE ACCOUNTING CYCLE: PERIODIC INVENTORY SYSTEM
DIRECTIONS: Read and analyze the transactions below. Using PERIODIC INVENTORY
SYSTEM, perform all the steps in the accounting cycle. Chart of accounts and sample answers are
provided for you.
In March 2019, Ms. Rea Navara opened Navara Department Store. The following are the
transactions incurred by her business in its first month of operation:
March 1 Ms. Navarra invested Php 150,000 cash and Php 25,000 worth of office equipment
in the name of the business.
2 Hired a sales assistant with a monthly salary of Php 3,000.
4 Bought merchandise from LS Enterprises for Php 21,500 cash and paid
transportation cost of Php 300.
5 Paid advertising for the month, Php 500.
6 Purchased office supplies for cash, Php 6,000.
7 Returned defective merchandise worth Php 1,800 to LS Enterprises.
9 Sold merchandise on credit to Mr. Alejo, Php 19,200. The cost of merchandise is
Php 15,000.
10 Paid the transportation worth Php 120 for the merchandise sold on July 9.
12 Received returned merchandise from Mr. Alejo worth Php 750. The cost of
merchandise returned if Php 586.
15 Paid half-month salary of employee, Php 1,500.
16 Sold merchandise for cash amounting to Php 10,800. The cost of merchandise is
P6,000.
18 Received payment from the credit of Mr. Alejo. Navara Department Store granted
a discount of Php 369.
19 Bought merchandise on credit from Zee Wear Store for Php 8,400.
20 Paid transportation cost of Php 80 for the merchandise bought on March 19.
22 Returned defective merchandise to Zee Wear Store, Php 800.
23 Sold merchandise for cash, P5,000. The cost of merchandise is 3,800.
25 Paid the credit to Zee Wear Store. A discount of Php 152 was granted.
28 Paid the utilities for the month amounting to Php 1,200.
31 Ms. Navara withdrew Php 4,000 cash from the business.
Adjustments:
a. Half-month salary of employee has accrued on March 31.
b. Supplies at the end of the month amounted to Php 5,400
c. Office equipment depreciated by Php 100 on March 31.
d. Merchandise inventory at month-end amounted to Php 3,314.
142
CHART OF ACCOUNTS
Account Account
Account Titles Account Titles
No. No.
100 Cash 400 Sales
120 Accounts Receivable 410 Sales Returns and Allowances
130 Merchandise Inventory 420 Sales Discount
140 Office Supplies 500 Purchases
150 Office Equipment 510 Purchase Returns and Allowances
151 Accumulated Depreciation-Office Equipment 520 Purchase Discount
200 Accounts Payable 530 Freight-In
210 Salaries Payable 600 Freight-Out
300 Navara, Capital 610 Advertising Expense
310 Navara, Drawing 620 Salaries Expense
630 Utilities Expense
640 Office Supplies Expense
650 Depreciation Expense-Office Equipment
700 Income Summary
COMPLETE THE ACCOUNTING CYCLE
a. From the transactions incurred by Navara Department Store, is there any transaction
which has no financial effect on the business and cannot be measured? _____________
b. If your answer is yes, write the transaction below:

__________________________________________________________________________
General Journal
2019
March 1 Cash Php 150,000
Office Equipment 25,000
Navara, Capital Php 175,000
To record initial investment of owner
4 Purchases 21,500
Freight-In 300
Cash 21,800
To record purchase of merchandise and
payment of transportation
5 Advertising Expense 1,000

Cash 1,000
To record payment of advertising
143
6 Office Supplies 6,000
Cash 6,000
To record purchase of office supplies
7 Cash 1,800
Purchase Returns and Allowances 1,800
To record returned merchandise to seller
9 Accounts Receivable 19,200

Sales 19,200
To record sales on credit
10 Freight-Out 120
Cash 120
To record payment of transportation

To record returned merchandise by
customer
15 Salaries Expense 1,500

Cash 1,500
To record payment of salary
16 Cash 10,800
Sales 10,800
To record cash sales
18 Cash 18,081
Sales Discount 369
To record payment from customer
19 Purchases 8,400
To record credit purchase of merchandise
20 Freight-In 80
Cash 80
22 Accounts Payable 800

Purchase Returns and Allowances 800
23 Cash 5,000
Sales 5,000
144
25 Accounts Payable 7,600
Purchase Discount 152
Cash 7,448
To record payment for merchandise
28 Utilities Expense 1,200

Cash 1,200
To record payment of utilities
31 Navara, Drawing 4,000

Cash 4,000
To record drawing by owner
Account: Cash No: 100 Balance

Date 2019 Items F Debit Credit Debit Credit
Mar 1 Initial Investment 150,000 150,000
Payment to supplier and
4 21,800 128,200
transportation
5 Paid advertising 500 127,700
6 Purchased office supplies 6,000 121,700
7 Returned merchandise 1,800 123,500
10 Paid transportation 120 123,380
15 Paid salary 1,500 121,880
16 Cash sales 10,800 132,680
18 Payment from customer 18,081 150,761
20 Paid transportation 80 150,681
23 Cash sales 5,000 155,681
25 Payment to supplier 7,448 148,233
28 Paid utilities 1,200 147,033
30 Owner’s drawing 4,000 143,033
Account: Accounts Receivable No: 120 Balance

Mar 9 Sales on credit 19,200 19,200
12 Returned merchandise 750 18,450
18 Payment from customer 18,450 0
Account: Merchandise Inventory No: 130 Balance

Mar 31 Adjustment (d) 3,314 3,314
145
Account: Office Supplies No: 140 Balance
Mar 3 Purchased supplies 6,000 6,000
31 Adjustment (b) 600 5,400
Account: Office Equipment No: 150 Balance

Account: Accumulated Depreciation-Office Equipment No: 151 Balance

Mar 31 Adjustment (c) 100 100
Account: Accounts Payable No: 200 Balance

Mar 19 Bought merchandise 8,400 8,400
Returned defective
22 merchandise
800 7,600
11 Payment to supplier 7,600 0
Account: Salaries Payable No: 210 Balance

Mar 31 Adjustment (a) 1,500 1,500
Account: Capital No: 300 Balance

31 Closing Entry 4,147 179,147
Account: Drawing No: 310 Balance

Mar 30 Owner’s drawing 4,000 4,000
31 Closing Entry 4,000 0
Account: Sales No: 400 Balance

16 Cash sales 10,800 30,000
23 Cash sales 5,000 35,000
146
Account: Sales Returns and Allowances No: 410 Balance
Mar 12 Returned merchandise 750 750
31 Closing Entry 750 0
Account: Sales Discount No: 420 Balance

Mar 18 Discount to customer 369 369
Account: Purchases N: 500 Balance

19 Bought merchandise 8,400 29,900
Account: Purchase Returns and Allowances No: 510 Balance

Returned defective
Mar 7 1,800 1,800
merchandise
Returned defective
22 800 2,600
merchandise
Account: Purchase Discount No: 520 Balance

Mar 25 Discount from supplier 152 152
Account: Freight-In No: 530 Balance

Mar 4 Paid transportation 300 300
20 Paid transportation 80 380
Account: Freight-Out No: 600 Balance

147
Account: Advertising Expense No: 610 Balance
Mar 5 Paid advertising 500 500
Account: Salaries Expense No: 620 Balance

Mar 15 Paid salary 1,500 1,500
31 Adjustment (a) 1,500 3,000
Account: Utilities Expense No: 630 Balance

Mar 28 Paid utilities 1,200 1,200
Account: Office Supplies Expense No: 640 Balance

Account: Depreciation Expense-Office Equipment No: 650 Balance

Mar 31 Adjustment (c) 100 100
Account: Income Summary No: 700 Balance

148
4. PREPARING UNADJUSTED TRIAL BALANCE
NAVARA DEPARTMENT STORE

UNADJUSTED TRIAL BALANCE
Cash Php 143,033
Office Supplies 6,000
Navara, Drawing 4,000
Sales 35,000
Sales Returns and Allowances 750
Sales Discount 369
Purchases 29,900
Freight-In 380
Freight-Out 120
Total Php 212,752 Php 212,752
149
Worksheet
Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Cash 143,033 143,033 143,033
Merchandise Inventory 3,314 3,314
Office Supplies 6,000 600 5,400 5,400
Office Equipment 25,000 25,000 25,000
Accumulated Depreciation-Office 100 100 100
Equipment
Salaries Payable 1,500 1,500 1,500

Navara, Capital 175,000 175,000 175,000
Navara, Drawing 4,000 4,000 4,000
Sales 35,000 35,000 35,000
Sales Returns and Allowances 750 750 750
Sales Discount 369 369 369
Purchases 29,900 29,900 29,900
Purchase Ret. and Allowances 2,600 2,600 2,600
Purchase Discount 152 152 152
Freight-In 380 380 380
Freight-Out 120 120 120
Advertising Expense 500 500 500
Salaries Expense 1,500 1,500 3,000 3,000
Utilities Expense 1,200 1,200 1,200
Office Supplies Expense 600 600 600
Depreciation Expense -Office 100 100 100
Equipment
212,752 212,752 2,200 2,200 214,352 214,352 36,919 41,066 180,747 176,600
4,147 4,147
41,066 41,066 180,747 180,747
150
General Journal
2019
March 31 Salaries Expense Php 1,500
Salaries Payable Php 1,500
To record accrued salary
31 Office Supplies Expense 600

Office Supplies 600
To record used supplies
31 Depreciation Expense-Office Equip. 100

Accumulated Depreciation-Office Equip. 100
To record depreciation
31 Merchandise Inventory, Ending 3,314

To record ending merchandise inventory
After journalizing adjusting entries, make sure to post them in the ledger.

Income Statement
Net Sales
Sales Php 35,000
Less: Sales Returns and Allowances (750)
Sales Discount (369)
Net Sales Php 33,881
Cost of Sales
Merchandise Inventory, Beginning Php 0
Purchases 29,900
Less: Purchase Returns and Allowances (2,600)
Purchase Discount (152)
Net Purchases 27,148
Add: Freight-In 380
Goods Available for Sale 27,528
Less: Merchandising Inventory, Ending 3,314
Cost of Sales Php 24,214
151
Operating Expenses
Freight-Out Php 120
Office Supplies Expense 600
Depreciation Expense-Office Equipment 100
Total Operating Expenses Php 5,520
Net Profit Php 4,147

Balance Sheet
Assets Amount Liabilities and Equity Amount
Current Assets Liabilities
Cash Php 143,033 Salaries Payable Php 1,500
Office Supplies 5,400 Owner’s Equity
Total Current Assets Php 151,747 Capital, 03/01/2019 Php 175,000
Fixed Assets Add: Profit 4,147
Office Equipment Php 25,000 Total 179,147

Less: Accumulated
Depreciation -Office Equipment
100 Less Navara, Drawing (4,000)
Total Fixed Assets Php 24,900 Capital, 03/31/2019 Php 175,147
Total Liabilities and

Total Assets Php 176,647 Php 176,647
Owner’s Equity
152
Statement of Owner’s Equity
Capital, 03/01/2019 Php 175,000
Add: Profit 4,147
Total 179,147
Less: Navara, Drawing (4,000)
Capital, 03/31/2019 Php 175,147

Statement of Cash Flow
Operating Activities
Cash received from customers Php 35,681
Cash paid to suppliers (28,948)
Cash paid to employee (1,500)
Cash paid for advertising (500)
Cash paid for office supplies (6,000)
Cash paid for utilities (1,200)
Cash paid for transportation (500)
Net cash used in operating activities Php (2,967)
Investing Activities Php 0
Financing Activities
Owner’s contribution Php 150,000
Owner’s drawing (4,000)
Net cash from financing activities Php 146,000
Net change in cash Php

Capital, 03/01/2019 0
Capital, 03/31/2019 Php 143,033
153
General Journal
2019
March 31 Sales Php 35,000
Sales Returns and Allowances Php 750
Sales Discount 369
31 Income Summary 33,048

Purchases 29,900
Freight-In 380
Freight-Out 120
Office Supplies Expense 600
Depreciation Expense-Office Equipment 100
31 Income Summary 4,147

Navara, Capital 4,147
31 Capital 4,000
Navara, Drawing 4,000
After journalizing closing entries, make sure to post them in the ledger.

POST-CLOSING TRIAL BALANCE
Cash Php 143,033 Php
Office Supplies 5,400
Accumulated Depreciation-Office Equipment 100
Salaries Payable 1,500
Navara, Capital 175,147
Total Php 176,747 Php 176,747
154
GUIDE QUESTIONS
Answer the following questions briefly. (10 points)

Why do you need to perform all the steps in the accounting cycle? What will likely happen if
you skip even one of these steps?
REFLECTION
Let us know your thoughts! Tell us how you find learning each of the steps in the accounting cycle
by rating it as EASY, AVERAGE or DIFFICULT. Put a check ( / ) in the appropriate box.
I FIND …. EASY AVERAGE DIFFICULT
a. Identifying transactions
b. Journalizing transactions
c. Posting transactions
d. Preparing unadjusted trial
balance
e. Preparing worksheet
f. Preparing adjusting entries
g. Preparing financial statements
h. Closing the books
You are now done Completing the Accounting Cycle.

Congratulations!!!
155
156
General Journal
2019
March 1 Cash Php 150,000
To record initial investment of owner
4 Purchases 21,500
Freight-In 300
Cash 21,800
To record purchase of merchandise and
payment of transportation
5 Advertising Expense 1,000
Cash 1,000
To record payment of advertising
6 Office Supplies 6,000
Cash 6,000
To record purchase of office supplies
7 Cash 1,800
9 Accounts Receivable 19,200
Sales 19,200
To record sales on credit
10 Freight-Out 120
Cash 120
To record returned merchandise by customer
15 Salaries Expense 1,500
Cash 1,500
To record payment of salary
16 Cash 10,800
Sales 10,800
18 Cash 18,081
Sales Discount 369
To record payment from customer
19 Purchases 8,400
To record credit purchase of merchandise
20 Freight-In 80
Cash 80
22 Accounts Payable 800
Purchase Returns and Allowances 800
23 Cash 5,000
Sales 5,000
25 Accounts Payable 7,600
Cash 7,448
To record payment for merchandise
28 Utilities Expense 1,200
Cash 1,200
To record payment of utilities
31 Navara, Drawing 4,000
Cash 4,000
To record drawing by owner
b. Hired a sales assistant with a monthly salary of Php 3,000.
a. Yes
ANSWER KEY
https://youtube.com/watch?v=OXRL-seKmiM&feature=share
https://youtube.com/watch?v=Xrc-1BbQpwI&feature=share
http://www.opentextbooks.org.hk/ditatopic/12897
Online References: •
MANAGEMENT 1. Commission on Higher Education, 2016. Chairperson: Patricia B. Licuanan, Ph.D.
Teaching Guide for Senior High School FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND •
Ballada, Win and Ballada, Susan. Basic Accounting Made Easy. 14th edition. 2009 •
157
Account: Sales No: 400 Balance Account: Cash No: 100 Balance
Date Items F Debit Credit Debit Credit Date 2019 Items F Debit Credit Debit Credit
16 Cash sales 10,800 30,000
23 Cash sales 5,000 35,000 Payment to supplier and
4 21,800 128,200
31 Closing Entry 35,000 0 transportation
Paid advertising
5 500 127,700
Account: Sales Returns and Allowances No: 410 Balance Purchased office supplies
6 6,000 121,700
Date Items F Debit Credit Debit Credit Returned merchandise
7 1,800 123,500
Mar 12 Returned merchandise 750 750
Paid transportation
10 120 123,380
Paid salary
15 1,500 121,880
Account: Sales Discount No: 420 Balance Cash sales
16 10,800 132,680
Date Items F Debit Credit Debit Credit Payment from customer
18 18,081 150,761
Mar 18 Discount to customer 369 369
Paid transportation
20 80 150,681
Cash sales
23 5,000 155,681
Account: Purchases N: 500 Balance Payment to supplier
25 7,448 148,233
Date Items F Debit Credit Debit Credit Paid utilities
28 1,200 147,033
Mar 4 Bought merchandise 21,500 21,500 Owner’s drawing
30 4,000 143,033
19 Bought merchandise 8,400 29,900
Account: Accounts Receivable No: 120 Balance
Account: Purchase Returns and Allowances No: 510 Balance Date Items F Debit Credit Debit Credit
Returned defective
Mar 7 1,800 1,800 12 Returned merchandise 750 18,450
merchandise
Returned defective 18 Payment from customer 18,450 0
22 800 2,600
merchandise
Account: Merchandise Inventory No: 130 Balance
Account: Purchase Discount No: 520 Balance
Mar 25 Discount from supplier 152 152
Account: Freight-In No: 530 Balance Account: Office Supplies No: 140 Balance
20 Paid transportation 80 380 Mar 3 Purchased supplies 6,000 6,000
31 Closing Entry 380 0 31 Adjustment (b) 600 5,400
Account: Freight-Out No: 600 Balance
Account: Office Equipment No: 150 Balance
Mar 10 Paid transportation 120 120 Date Items F Debit Credit Debit Credit
31 Closing Entry 120 0 Mar 3 Initial Investment 25,000 25,000
Account: Advertising Expense No: 610 Balance
Account: Accumulated Depreciation-Office Equipment No: 151 Balance
Mar 5 Paid advertising 500 500 Date Items F Debit Credit Debit Credit
31 Closing Entry 500 0 Mar 31 Adjustment (c) 100 100
Account: Salaries Expense No: 620 Balance
Date Items F Debit Credit Debit Credit Account: Accounts Payable No: 200 Balance
Mar 15 Paid salary 1,500 1,500 Date Items F Debit Credit Debit Credit
31 Adjustment (a) 1,500 3,000
Returned defective
22 800 7,600
merchandise
Account: Utilities Expense No: 630 Balance
11 Payment to supplier 7,600 0
Mar 28 Paid utilities 1,200 1,200
31 Closing Entry 1,200 0 Account: Salaries Payable No: 210 Balance
Account: Office Supplies Expense No: 640 Balance
Date Items F Debit Credit Debit Credit Mar 31 Adjustment (a) 1,500 1,500
Account: Capital No: 300 Balance
Account: Depreciation Expense-Office Equipment No: 650 Balance
Date Items F Debit Credit Debit Credit Mar 1 Initial Investment 175,000 175,000
Mar 31 Adjustment (c) 100 100 31 Closing Entry 4,147 179,147
Account: Income Summary No: 700 Balance
Date Items F Debit Credit Debit Credit Account: Drawing No: 310 Balance
Mar 31 Adjustment (d) 3,314 3,314 Date Items F Debit Credit Debit Credit
Mar 30 Owner’s drawing 4,000 4,000
31 Closing Entry 4,147 0 31 Closing Entry 4,000 0
Account: Sales No: 400 Balance
16 Cash sales 10,800 30,000
23 Cash sales 5,000 35,000
Account: Sales Returns and Allowances No: 410 Balance
158
Worksheet
Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Cash 143,033 143,033 143,033
Merchandise Inventory 3,314 3,314
Office Supplies 6,000 600 5,400 5,400
Office Equipment 25,000 25,000 25,000
Accumulated Depreciation-Office 100 100 100
Equipment
Salaries Payable 1,500 1,500 1,500
Navara, Capital 175,000 175,000 175,000
Navara, Drawing 4,000 4,000 4,000
Sales 35,000 35,000 35,000
Sales Returns and Allowances 750 750 750
Sales Discount 369 369 369
Purchases 29,900 29,900 29,900
Purchase Ret. and Allowances 2,600 2,600 2,600
Purchase Discount 152 152 152
Freight-In 380 380 380
Freight-Out 120 120 120
Advertising Expense 500 500 500
Salaries Expense 1,500 1,500 3,000 3,000
Utilities Expense 1,200 1,200 1,200
Office Supplies Expense 600 600 600
Depreciation Expense -Office 100 100 100
Equipment
212,752 212,752 2,200 2,200 214,352 214,352 36,919 41,066 180,747 176,600
4,147 4,147
41,066 41,066 180,747 180,747
4. PREPARATION OF UNADJUSTED TRIAL BALANCE
159
Prepared by:
CHAIRMAINE M. ORAYE
T-I
Oas Polytechnic School
160
FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT 1
Name: ________________________________________ Grade Level: _________________

Strand and Section: _____________________________ Date: _______________________
LEARNING ACTIVITY SHEET week 9

PREPARING STATEMENT OF COST OF GOODS SOLD and GROSS PROFIT
Cost of goods sold or cost of sales in the largest single expense of the merchandising business. It
is the cost of inventory that the entity has sold to customers. Every merchandising business has goods
available for sale to customers. The goods available for sale during the year is the sum of two factors –
merchandise inventory at beginning of the year and the net purchases during the period.
If an entity were able to sell all the goods available for sale during a given accounting period,
the cost of goods sold would be equal to goods that had been available for sale. In most cases,
however, the business will have goods still unsold at the end of the year. To find the actual cost of
goods sold, the merchandise inventory at the end of the period is subtracted from the goods
available for sale.
Figure 1 – Goods Available for sale
Gross Profit is also called gross margin, represents the company’s profit from selling
merchandise before deducting operating expenses such as salaries, rent and delivery expenses. The
gross profit is equal to net sales minus the cost of goods sold.
161
Net sale is what remains after all returns, allowances and sales discounts have been subtracted from
gross sales.
1.
For example, if a company has gross sales of P100,000, sales returns of P5,000, sales allowances
of P3,000 and discounts of P2,000, the net sales are calculated like this:
Net Sales = Gross Sales - Sales Returns - Sales Allowances – Discounts

P90,000 = P100,000 – P 5,000 – P 3,000 – P2,000
REMEMBER:
Computation for Net Sales:

Gross Sales Pxxx
Less: Sales discount Pxxx
Sales Returns & Allowances xxxx xxxxx
Net Sales: (a) Pxxx
Computation for Cost of Goods Sold:
Merchandise Inventory, Beginning P xxx
Add: Net Cost of Purchases
Purchases Pxxx
Less: Purchase returns & Allowances Pxxx
Purchase Discount xxx xxx
Net Purchases Pxxx
Add: Freight -in xxx Xxx
Goods available for sale Pxxx
Less Merchandise Inventory, End Xxx
Cost of Goods Sold: (b) Pxxx
Computation for Gross Profit:
Gross Profit = Net Sales (a) - Cost of goods sold (b) Pxxxxxxxx
162
Illustrative Example:
Given the partial trial balance of Super Sales Store below, prepares the statement of Cost
of Goods Sold and Gross profit.
Additional Information: Beginning Inventory is Php 8,500.00 and the ending inventory is 12,625.00
Below is the sample computation of Cost of Goods Sold and Gross Profit.
Computation for Net Sales
Gross Sales P 17,550.00

Less: Sales Returns & allowances P 1,050
Sales Discount P 114 1,164.00
Net Sales P_ 16,386.00
Computation for Net Purchases

Merchandise Inventory, Beginning P__ 8,500.00
Purchases P 18,000.00
Less: Purchase returns & Allowances 2,120.00
Purchase Discount 117.60 ___2,237.60
Net Purchases P 15,762.40
Add: Freight -in 120 15,882.40
Goods available for sale P 24,382.40
Less: Merchandise Inventory, End P 12,625.00
Cost of Goods Sold P 11,757.40
Computation for Grass Profit
Gross profit = Net Sales – Cost of goods sold (Php 16,386- Php11,757.40) P 4,628.60
163
LEARNING COMPETENCY
➢ The learner prepares the statements of cost of goods sold and gross profit. ABM-
FABM11-IVe-j - 41
ACTIVITY
It’s time to deepen your understanding about preparing Trial Balance of a service type of
business by doing the following tasks. Just follow the simple instructions given in each task .
Given below are the account balances taken from the book of Chen Chen Merchandising on
December 2019.
Activity 1: Complete Me
Directions: Given the account balances of Chen-Chen Merchandising, determine the Net
sales, prepares the Statement of Cost of goods Sold and the Gross Profit. Copy the table in
your paper and complete the entry. You will get 1 point for every correct answer
Chen-Chen Merchandising
December 2019
Gross Sales P 782,000
Less: Sales Returns & allowances P__________
Sales Discount P 48,000 _____________
Net Sales P____________
Computation for Cost of Goods Sold

Merchandise Inventory, Beginning P_________
Purchases P 220,000
Less: Purchase returns & Allowances __________
Purchase Discount 26,000 __________
Net Purchases P__________
Add: Freight -in 10,000 _____________
Goods available for sale P ___________
Less: Merchandise Inventory, End P 120,000
Cost of Goods Sold P __________
Computation for Grass Profit = Net Sales – Cost of Goods Sold P ______________
164
Activity 2: Think and Solve
DIRECTIONS: Below is the partial income statement of five (5) different companies for the
same period December 31, 2019. Replace the letter with the correct amounts that will satisfy the
relationship between each account. Show your computation in your answer sheets.
Goods available for sales= Beginning inventory + net purchases

Cost of goods sold = Goods available for sales – Merchandise inventory, End
Gross Profit = Net Sales – cost of goods sold
1 2 3 4 5
Net Sales a d 250,000 290,000 400,000

Merchandise Inventory, 50,000 120,000
b 70,000 j
Beginning
Net Purchases 80,000 e g 160,000 390,000
Goods available for sales 110,000 160,000 h k m
Merchandise Inventory, End 40,000 f 30,000 70,000 n
Cost of goods sold c 140,000 230,000 l 380,000
Gross Profit 50,000 40,000 I 160,000 o
Activity 3: Do the Cycle!
DIRECTIONS: After performing the series of activities from journalizing, posting, preparing
trial balance and preparing statement of COGS and Gross profit, it’s time for you to apply it in
the given transactions below.
Task: Prepare the statement of Cost of Goods Sold and Gross Profit. Copy the table in your
answer sheets, and then filled it up. 1 point for every correct answer.
Given:
The Gonzaga Company engaged in the following transactions in August 2020:
Aug Sold merchandise to Villegas Trading on credit, terms n/30, FOB shipping point,
1 P21,000.
3 Purchased merchandise on credit from seco stores, terms n/30, FOB shipping point ,
P38,000
5 Paid Banner Freight for freight charges on merchandise received, P290.00
6 Purchased store supplies on credit from Ruiz Supplies, terms n/20, P6,360.
165
8 Purchased merchandise on credit from Dedumo Company, terms n/30, FOP shipping
point, P36,000. Dedumo Company paid P200 for freight costs
12 Returned some of the merchandise received on Aug 3, for credit, P6,000.
15 Sold merchandise on credit to Caayao Stores, terms n/30, FOB Shipping point,
P12,000
16 Returned some of the store supplies purchased on Aug. 6 for credit, P2,000.
17 Sold merchandise for cash, P50,000.
18 Accepted for full credit a return from Villegas Trading, P 2,000
24 Paid accounts to Seco Stores
25 Received full payment from Villegas Trading.
Note: Beginning Inventory for the month is P 22,500, while the ending inventory is P35,650.
Gonzaga Company
August 2020
Gross Sales P ___________

Less: Sales Returns & allowances P__________
Sales Discount __________ _____________
Net Sales P____________
Computation for Net Purchases

Merchandise Inventory, Beginning P_________
Purchases P _________
Less: Purchase returns & Allowances P_________
Purchase Discount __________ __________
Net Purchases P__________
Add: Freight -in __________ _____________
Goods available for sale P ___________
Less: Merchandise Inventory, End P ___________
Cost of Goods Sold P __________
Computation for Grass Profit = Net Sales – Cost of Goods Sold P ______________
REFLECTION
A. Reflect on the activity you have done. Write your answer on the box
Things I love…
Things I found interesting…
Things I Wonder about…
166
Quarterly Task:
Be an Entrepreneur
Congratulations! Now, you learned about merchandising type of business, journal entry, posting,
trial balance & accounting cycle along with statement of cost of goods sold and gross profit.
You’ve made it this far. Keep going. I am happy to tell you that we are in the last activity for the
subject. It’s time to apply what you have learned, so, let’s begin.
As an ABM student, imagine yourself as an entrepreneur 5 years from now. Look for a business
partner. Then, think of business that will promote or preserve the cultural heritage of your locality
or municipality. You can take Cagsawa ruins in Daraga as an example. What business will help the
people promote, love and preserve Cagsawa?
Task:
Modular/Blended Distance Learning:
1. Think of a catchy business name.

2. List down at least 10 possible merchandising transactions related to your business.
3. Prepare journal entry, posting, trial balance and statement of cost of goods sold and of gross
profit.
4. Furthermore, explain how your business will promote and preserve the cultural heritage of
your locality.
Online distance learning:
You can design a flyer or brochure for your chosen business promoting Cagsawa ruins. Include the
following details:
a. Catchy business name

b. Everything About My Business
c. Explanation on how your business will promote and preserve the cultural heritage of your
locality.
d. Illustrations to give idea on how your business will operate and the products you plan to
have.
Be creative in making this activity.
On a separate sheet, do the following tasks:
a. List down at least 10 possible merchandising transactions related to your business.

b. Prepare journal entry, posting, trial balance and statement of cost of goods sold and of
gross profit.
You can do this! Stay motivated and willing to learn.
167
RUBRICS:
Criteria Excellent (15 pts) Very good (12 pts) Good (10 pts)
Thorough and Complete Shows some
insightful understanding of the understanding of the
understanding of the concept of concept on
concept of
Content (80%) Merchandising Merchandising
merchandising business and business and
business and Statement of COGS Statement of COGS
Statement of COGS
and of Gross Profit and of Gross Profit
and of Gross Profit
Enthusiastically uses Use ideas and Shows some use of
Creativity (20%) ideas and materials materials for ideas and materials
for enhancement enhancement for enhancement

• Banggawan, Rex B. & Asuncion, Darrel Joe, Fundamentals of ABM Part 1, Real
Excellence Publishing
• Ong, Flocer Lao, Fundamentals of Accountancy, Business and Mathematics 1, C & E
Publishing, Inc
• Ballada, Winifred Lu, Basic Accounting,
• Teaching Guide for SHS Fundamentals of Accountancy, Business and Management.
• https://www.thebalancesmb.com/how-to-calculate-cost-of-goods-sold-397501
Prepared by:
CYNTHIA L ABIERA
SHS – ABM Teacher
Daraga National High School
168
ANWER KEY
169

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SDO ALBAY

LAS DEVELOPMENT TEAM

DIVISION EVALUATION TEAM

CID Chief, Sancita B. Peñarubia

FUNDAMENTALS OF ABM 1 LAS TEAM FOR QUARTER 4 WRITERS:

May Sarcia Arnoza Edna B. Lositano

Leah N. Dalisay- Amora Hazel R. Veloso

Jennivic L. Mangampo Cherry B. Lantican

Efren N. Nocete Ma. Ceazare D. Barnuevo

Teresita O. Mandac Chairmaine M. Oraye

Maribel N. Veluz Ross Alden A. Bigtas

Lourdes M. Bataller Cynthia L. Abiera

TEAM LEADER : Cynthia L. Abiera

Week No. Learning Competencies Page No.

Prepares adjusting entries of service type of business

Complete the accounting cycle of service type of

Describes the nature of transactions in a merchandising

Records transactions of a merchandising business in the

Post transactions in the general and subsidiary ledgers

6 Prepares a trial balance ABM_FABM11- ive-j -38 98

Prepares adjusting entries and worksheets

Completes the accounting cycle of a merchandising

Prepares the Statement of Cost of Goods Sold and

Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4-Week 1

BACKGROUND INFORMATION FOR LEARNERS

The Need for Adjustments

Montero’s Wedding Consultancy acquired a one-year comprehensive insurance coverage on

On May 8, Montero’s Wedding Consultancy purchased supplies, P18,000 on account.

Depreciation of Property and Equipment

This simplest procedure is called straight-line method.

Asset cost - Estimated salvage value

Services vehicle and Office Equipment.

Note: See Exhibit 1

Unearned referral Revenues

On May 15, Montero’s Wedding Consultancy is earning additional revenues by referring

Note: See Exhibit 1

By May 31, the interest to be accrued is P3,500.

Note: See Exhibit 1

Account Receivables 5,300

By May 31, the expense to be accrued is P1,800.

1. Initial entry is recorded as an asset Dr Cr

2. Initial entry is recorded as an expense

1. Adjusting entry required if initial entry is recorded as an asset

2. Adjusting entry required if initial entry is recorded as an expense

Preparing the adjusted trial balance

Debit Credit Debit Credit Debit Credit

Cash Php 22,600 22,600

Exhibit 1: Adjusted Trial Balance

Date Account Title and Explanation Ref Debit Credit

________________1. A fiscal year must begin on January 1.

Date Account Title and Ref Debit Credit

Activity 3: “SCAVENGER HUNT”

REFLECTION: “MY REVENUE”

REFERENCES FOR LEARNERS:

Name: ________________________________ Grade Level: _________________

LEARNING ACTIVITY SHEET Q4-WEEK 2

Background Information for Learners:

PREPARE UNADJUSTED TRIAL BALANCE

PREPARE ADJUSTING ENTRIES

Name: ________________ Grade Level: _

Name: ________________ Grade Level: _