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ACCOUNTING FOR MERCHANDISING

NATURE OF A MERCHANDISING CONCERN

Vera Cruz Manuel (2016) A business organization that deals with buying and selling of goods is called a
merchandising or trading concern. A merchandising concern earns revenue by selling goods or merchandise
on wholesale or retail basis. Merchandise refers to goods or commodities bought by the business for resale
at a certain amount of profit. There are two methods, the Perpetual Inventory Method and the Periodic
Inventory Method. Under the Perpetual Inventory Method, costs of goods sold and ending inventory may
be determined from the accounting records without a physical counting of goods. When a Periodic
Inventory Method is used, costs of goods sold and the ending inventory is determined by physically
counting the items counted by its costs.

Valencia & Roxas (2015, p480) the amount of inventory on hand and the cost of inventory sold can be
determined by either the Periodic Inventory System or the Perpetual Inventory System.
Periodic Inventory System

Under the Periodic Inventory System, a company does not maintain a continuous record of the physical
quantities of inventory on hand.

In this system, all purchases recorded are debited and the credited respectively to
Purchases
Cash or Accounts Payable
To record the purchases

In order to arrive at the ending inventory, a physical vaunting to be conducted by any of the staff or whoever
is in charge.

The Cost of Goods Sold then is computed using the following formula:
Beginning Merchandise Inventory Pxx
Add: Net Purchases xx
Purchases Pxx
Add: Freight In xx
Total xx
Less: Purchase Discount
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Purchase Returns and Allowances xx
Total Goods Available for Sale xx
Less: Ending Inventory xx
COSTS OF GOODS SOLD XX

Perpetual Inventory System

Under the Perpetual Inventory System, a company maintains a continuous record of the changes of the
physical quantities of the inventory on hand.

In this system, all purchases recorded are debited and credited respectively to
Merchandise Inventory
Cash or Accounts Payable
To record the Purchases

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Comparing Periodic and Perpetual Inventory System

Periodic Perpetual
1. Upon Purchase of Purchases Merchandise Inventory
Goods Cash or Accounts Payable Cash or Accounts Payable
2. Upon paying Freight Freight In Merchandise Inventory
(borne by buyer) Cash or Accounts Payable Cash or Accounts Payable
3. Upon Purchase Returns Cash or Accounts Payable Cash or Accounts Payable
and Allowances Purchase Returns and Merchandise Inventory
Allowances
4. Upon Purchase Discount Cash or Accounts Payable Cash or Accounts Payable
Purchase Discount Merchandise Inventory

5. Upon Sales Cash or Accounts Receivable Cash or Accounts Receivable

Sales Sales

Cost of Goods Sold

Merchandise Inventory
6. Upon Sales Return Sales Returns and Allowances Sales Returns and Allowances
Cash or Accounts Cash or Accounts
Receivable Receivable

Note: in the actual exam, they

do not recognize this:
Merchandise Inventory
Cost of Goods Sold

7. Upon Sales Discount Cash Cash

Sales Discount Sales Discount

Accounts Receivable Accounts Receivable
8. Upon paying Freight Freight Out Freight Out
Cash Cash

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MERCHANDISING ACCOUNTS
The following are the trading accounts used by a merchandising concern:
1. Sales- Sale is an income account which is credited when the goods or merchandise are sold either
by cash or on account basis.
2. Sales Returns and allowances- Returns and allowances result from the return of any unsatisfactory
merchandise; this account is a deduction from sales and is debited when defective foods are
returned by the buyer.
3. Sales Discount- a sales discount is an account off the regular price of goods that is granted for early
payment.
4. Revenue from Sales or Net Sales- consists of gross sales less returns and allowances and
discounts.
5. Gross Profit from sales- gross profit from sales is divided by subtracting cost of sales from net
sales.
6. Purchases- Purchases account is the accumulated cost of all merchandise bought for resale during
an accounting period. It is debited when goods or merchandise are bought either in account or on
cash basis.
7. Purchase Returns and Allowances- this is a deduction from purchases. This is credited when
defective merchandise is returned to the supplier.
8. Purchase Discount- this account is credited when the supplier granted the buyer and amount of
discount. This can be treated as deduction from purchase or other income.
9. Freight In- this is debited if the business shoulders the payment for the delivery of goods bought.
This is added to purchases and a part of cost of sales.
10. Freight In- this is one of the operating expenses of the business, this is debited upon payment of
the delivery of the goods sold.
11. Merchandise Inventory- Goods for sales.
12. Cost of Goods Sales- cost of goods sold consists of the cost of merchandise on hand at the
beginning of the accounting period, net cost of merchandise purchased including cost of
transporting of goods bought during the period.

THE RULES ON T-ACCOUNTS FOR A MERCHANDISING CONCERN (PERIODIC

INVENTORY METHOD)

DEBITS CREDITS
PURCHASES SALES
SALES RETURNS AND ALLOWANCES PURCHASE RETURNDS AND
SALES DISCOUNTS ALLOWANCES
FREIGHT IN PURCHASE DISCOUNT
FREGHT OUT

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SALES DISCOUNTS

Two common discounts granted to customers are (1) Trade Discounts and (2) Cash Discounts

Trade Discounts- Merchandise offers their goods using a catalog where the goods are listed with
their process, a trade discount which is a percentage reduction from a published list price may be
granted to retailers or wholesalers for buying large quantities or for regularly patronizing the
business.

Illustration

Assuming that Furniture and Fixtures with a list price of P 30,000 was given a trade discount of 4% and
3%

List Price P 30, 000

Less: 4% of P 30,000 __1,200
P 28,000
Less: 3% of P 28,000 864
Gross Invoice Price P 27,936

Cash Discounts- when goods are sold on credit, terms of payment depend on the custom of the industry.
The usual credit terms which appear on the invoices are: n/30 (which means that the gross amount is payable
within 30 days from the date of sale), or 2/10, n/30 (which means the account payable within 30 days with
a 2% discount given if the account is paid within 10 days from the date of sale) 3/EOM,n/60 (which means
that the account payable within 60 days with a 3% discount given if the account is paid until the end of the
month from the date of sale) and 2/10, 1/15, n/30 (which means that the account payable is within thirty
days with a 2% discount given if the account is pain within 10 days from the date of sale, but only a 1%
discount if the account is pain after 10 days but within fifteen days from date of sale).

“We cannot help everyone, but everyone can help someone.” – Ronald Reagan

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EXERCISES:
MULTIPLE CHOICE QUESTIONS PART 1:
1. Each of the following companies is a merchandising company except
a.) Candy Store
b.) Car Wash
c.) Furniture Store
d.) Wholesale Parts Company

2. A merchandiser will earn a Net Income of exactly zero when

a.) Cost of Goods Sold equals gross profit
b.) Gross Profit equals Operating Expenses
c.) Net Sales equals Cost of Goods Sold
d.) Operating Expenses equals net sales

3. Which of the following is not considered as an operating expense?

a.) Administrative Cost
b.) Advertising Expense
c.) Freight In
d.) Freight Out

4. Which of the following goods would not be included in merchandise inventory for a purchasing
company?
a.) Goods in Transit shipped FOB Destination
b.) Goods in Transit shipped FOB Shipping Point
c.) Goods in hand in the showroom
d.) Goods ordered and received from the supplier

5. Under the perpetual inventory system, which of the following accounts would not be used?
a.) Cost of Goods Sold
b.) Merchandise Inventory
c.) Purchases
d.) Sales

6. The entry to record the return of goods from a customer would include a
a.) Credit to Sales
b.) Credit to Sales Returns and Allowances
c.) Debit to Sales
d.) Debit to Sales Returns and Allowances

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7. Merchandise Inventory becomes part of cost of goods sold when a company

a.) Pays for the inventory

b.) Purchases the inventory
c.) Receives payment from the customer
d.) Sells the inventory

8. Which of the following is not considered in computing net purchases?

a.) Purchase
b.) Purchase Returns and Allowances
c.) Transportation paid on goods shipped to customers
d.) Transportation paid on purchased goods

9. The entry to record a sale of P7,500 with terms 2/10, n2/30 would result in

a.) Credit to Accounts Receivable for P7,500

b.) Credits to Sales for P 7,500
c.) Debit Sales Discounts for P150
d.) Debit Sales Discounts for P7,350

10. The collection of a P 5,000 beyond the 2% discount period would result in a

a.) Credit to Accounts Receivable for P5,000

b.) Credit to Cash for P5,000
c.) Debit to Cash for P4,900
d.) Debit to Sales Discounts for P 100

11. Assuming that net purchases was P900,000 during the year and that ending merchandise
inventory was P20,000 less than the beginning merchandise inventory of P250,000 how much
was cost of goods sold?

a.) P1,130,000
b.) P670,000
c.) P920,000
d.) P1,170,000

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12. The entry to record a payment on a P15,000 account within the 2% discount period would
include a
a.) Credit to Accounts Payable for P 15,000
b.) Credit to Purchase discount for P 300
c.) Debit to Accounts Payable for P 14,700
d.) Debit to Cash for P 15,000
13. JUSTICE LEAGUE Traders purchased merchandise from THOR Suppliers for P 3,600 list
price, subject to a trade discount of 25%. The goods were purchased on terms of 2/10, n/30,
FOB Destination. Thor paid P 100 Freight cost. League returned P 400 of the merchandise to
THOR and later paid the amount due within the discount period. The amount paid is:

a.) P 2,254
b.) P 2,252
c.) P 2,246
d.) P 2,352
14. The December 31, 2017 Trial Balance for SAGADA Company included the following

Purchases P 40,000
Purchase Returns and Allowances P 2,000
Freight In P 3,000
Freight Out P 2,500
Sales Discount P 1,400
Ending Inventory P 8,000
What was the cost of goods sold for 2017?
a.) P39,000
b.) P33,000
c.) P38,000
d.) P35,000

15. A buyer received an invoice for P6,000 dated June 10. If the terms are 2/10, n/30, and the buyer
paid the invoice within the discount period, what amount will the seller receive?
a. P 6,000
b. P 5,880
c. P 4,800
d. P 120

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MULTIPLE CHOICE QUESTIONS PART 2

Purchase Returns and Allowances 20,000

Transportation In 30,000

Selling Expenses 75,000

General and Administrative 275,000

Expenses

1. All descriptions reveal the characteristics of a periodic inventory system, except:

a.) Cost of goods sold is determined at the end of the reporting period
b.) Purchases are recorded at cost
c.) Inventory record is always up to date
d.) Merchandise Inventory account is set up at the beginning and ending of accounting period

2-3. The following are taken from the ledger balances of TIRA MI SOUP Sales P 74,200, Purchases P
37,900, Ending Inventory, P 35,000, Sales Returns and Allowances, P 18,100, Purchase Discounts, P6,000,
Beginning Inventory, P 18,000, Sales Discount, P 15,500, Freight in P 2,000, Purchase Returns and
Allowances 2,000, Freight Out P3,500.

2. What is the amount of the Cost of Goods Available for Sale?

a.) P 40,600 c.) P 49,900
b.) P 14,900 d.) P 25,700
3. What is the amount of Gross Profit?
a.) P 49,000 c.) P 14,900
b.) P 40,600 d.) P 25,700
4. A sale on march 21 with terms of n/10 is due to be collected by:
a.) March 31
b.) April 1
c.) April 10
d.) April 30

5-6. use the following information to answer the following questions:

Account Name Debit Credit
Sales P 750,000
Sales Returns and Allowances P 15,000
Sales Discounts 10, 000
Purchases 170,000
Purchase Returns and Allowances 20,000
Transportation In 30,000
Selling Expenses 75,000
General and Administrative Expenses 275,000

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5. Cost of Goods Sold for the period was:

a.) P 235,000
b.) P 180,000
c.) P 200,000
d.) P 170,000

6. Profit for the period was:

a.) P 450,000
b.) P 525,000
c.) P 195,000
d.) P 175,000

7. An item retailing for P10,000, subject to trade discount of 25%, is paid for within the discount
period on terms 2/10, n/30. What is the amount payable?
a.) P 10,000 c.) P 7,400
b.) P 7,500 d.) P 7,350

8. The classification and normal balance of sales discount amount would be:
a.) Contra revenue and debit c.) Expense and Debit
b.) Contra revenue and credit d.) Revenue and Credit

9. Stock Card is necessary under what System?

a.) Perpetual Inventory System
b.) Periodic Inventory System
c.) All of the Above
d.) None of the Above

10. Which of the following is equal to Cost of Goods Sold Plus Ending Inventory
a.) Beginning inventory
b.) Goods Available for Sale
c.) Gross Profit
d.) Sales

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CHART OF ACCOUNTS TO JOURNALIZATION PROCESS

STEPS IN THE ACCOUNTING CYCLE

1. Analyzing the business documents or transactions
2. Journalizing- this is the process of recording the transactions in a journal
3. Posting- transactions as classified and recorded in the journal are transferred to appropriate
accounts in the general ledger
4. Preparing the unadjusted trial balance
5. Preparing the adjusting entries
6. Preparing the financial statements
7. Preparing the closing entries
8. Preparing the Post-Closing Trial Balance
9. Preparing the Reversing Entries
--------------------------------------------------------------------------------------------------
1. ANALYZING THE BUSINESS DOCUMENTS

One basic accounting principle is the verifiability of accounting records. The truthfulness and the
accuracy of the source documents will assure the user of financial information that is free from bias
and error and faithfully represents what it purports to represent.

Source Documents- are the forms, evidences or legal/official papers that serve as supports to the
underlying economic transactions. These evidential matters support the objectivity of accounting
records.

Examples:

1. Official Receipt- is a written acknowledgement of something received as money or goods.

2. Check Voucher- is a document that serves to recognize a liability and authorize the
disbursement of cash.
3. Check- is a draft upon a bank and payable on demand, signed by the maker or drawer,
containing an unconditional promise to pay a certain sum of money to the order of the
payee.
4. Promissory Note- is a promise or engagement in writing to pay a specified sum at a time
therein, limited, or on demand, or at sight to a person therein named, or to his order, or
bearer.
5. Commercial Invoice- is a written statement of merchandise sold to the buyer, together
with the prices and charges of merchandise sent or to be sent to him.
6. Bank Deposit Slip- is a document which serves as an evidence of an act of placing money
in the custody of a bank or banker, for safety or convenience, to be withdrawn at the will
of the depositor or under rules or regulations agreed upon.
7. Debit Memorandum- is a written notice which informs client of reducing his account.
8. Credit Memorandum- informs the client of increasing his account.
9. Billing or Statement of Account- is a report issued periodically by a bank or creditor to a
customer setting forth the amounts billed, credits given and balance due.

ANALYZING AND RECORDING TRANSACTIONS (JOURNALIZING)

The Chart of Accounts- is a listing account titles which guides the bookkeeper in the recording of
the transactions. The number and the nature of accounts depend on the type of business operations.

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SAMPLE PROBLEM: (PERIODIC METHOD)

The following are the CHART OF ACCOUNTS for Journalizing, Posting, Trail Balances,
Closing Entries and Post Closing Trial balance of THOR General Merchandise

Code Account Titles Code Account titles

10 Cash 61 Sales Discount
11 Accounts Receivable 62 Sales Returns and Allowances
12 Notes Receivable 70 Cost of Goods Sold
13 Merchandise Inventory 71 Purchases
20 Office Equipment 72 Freight in
21 Furniture & Fixtures 73 Purchase Discounts
30 Accounts Payable 74 Purchase Returns and Allowances
50 Thor, Capital 75 Freight Out
51 Thor, Drawing 76 Salaries Expense
52 Income summary 77 Utilities Expense
60 Sales 78 Advertising Expense

Use the following CHART OF ACCOUNTS for Financial Statement Preparation

Code Account Title Code Account Title
10 Cash and Cash Equivalents 70 Cost of Goods Sold
11 Accounts Receivable 71 Purchases
12 Notes Receivable 72 Freight In
13 Merchandise Inventory 73 Purchases Discounts
20 Property, Plant and Equipment 74 Purchase Returns and Allowances
30 Accounts Payable 75 Freight Out
50 Thor, Capital 76 Salaries
51 Thor, Drawing 77 Utilities
60 Sales 78 Advertising
61 Sales Discount 79 Office Supplies
62 Sales Returns and Allowances

CHARACTERISTICS OF AN ACCOUNT

An account in its simplest form has three parts, First, each account has a title, which is the name of the item
recorded in the account. Second, each account has a space for recording increases in the amount of the item.
Third, each account has a space for recording decreases in the amount of the item. The account form
presented below is called a T account because it resembles the letter T. the left side of the account is called
the debit side, and the right side is called the credit side.

Title
Left Side Right Side

Debit Credit

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Amounts entered on the left side of an account, regardless of the account title are called debits to the
account. When debits are entered in the account, the account is said to be debited. Amounts entered on the
right side of an account are called credits, and the account is said to be credited. Debits and Credits are
sometimes abbreviated as Dr. and Cr.

THE RULES ON T-ACCOUNTS

ASSETS
DEBITS CREDITS
INCREASES DECREASES
`
LIABILITIES
DEBITS CREDITS
DECREASES INCREASES

CAPITAL
CREDITS

INCREASES

WITHDRAWAL
DEBITS
INCREASES

REVENUE
CREDITS

INCREASES

EXPENSES/ COST OF GOODS SOLD

DEBITS
INCREASES

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The Journal
The accounting record in which the economic transactions and events are initially recorded is called a
“Journal”. It is known as the “Book of Original Entry” because it is the book where the economic
transactions are first recorded.
Recording Transactions in the Journal is called “Journalizing”
Simultaneously or after analyzing the effects of the transaction on the accounting elements, accountants
record the transactions in the books of accounts; first in the Journal and then in the Ledger.
The Journal provides a chronological record with explanations and clear references to their supporting
documents with corresponding debits and credits, while Ledger provides a classified record of accounts
with their respective running balances.
Each Entry made is called a Journal Entry.
Each Journal Entry contains the following items:
1. Date
2. The Account title and the amounts to be debited
3. The Account title and the amounts to be credited
4. Explanation

A Journal Entry with one debit and one credit is called a Simple Journal Entry.

A Journal Entry which has more than one debit or more than one credit is called a Compound Journal
Entry.

On the month of September, 2017, THOR GENERAL MERCHANDISE has the following Trial
Balance.
THOR GENERAL MERCHANDISE`
TRIAL BALANCE
SEPTEMBER 30, 2017
Account No. Account Title Debit Credit
10 Cash P 2,142,750
11 Accounts Receivable 99,190
30 Accounts Payable 885,450
50 Thor, Capital 1,356,490
P 2,241,940 P 2,241,940

SAMPLE ILLUSTRATIVE PROBLEM:

Mr. MALAYA owned a business named THOR GENERAL MERCHANDISE and had the following
transactions for the month of October, 2017. On October 1, Malaya received an inheritance from DINA
KULUNGAN worth 1,500,000 and invested 75% of which in the business.

Date
Particulars F Debit Credit
2017
October 1 Cash 10 P 1,125,000
Thor, Capital 50 P 1,125,000
Thor Investment

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October 5 Purchased Furniture and Fixtures to be used for office use worth P 86,400 on Account
Date
Particulars F Debit Credit
2017
October 5 Furniture and Fixtures 22 86,400.00
Accounts Payable 30 86,400.00
Purchased Furniture on
Account

October 7 Purchased P 97,000 worth of goods from REHAS Inc. on credit, with terms 4/10, 3/15,
2/25, n/30 and Paid Freight worth 2,450
Date
Particulars F Debit Credit
2017
October 7 Purchases 71 97,000.00
Accounts Payable 30 97,000.00
Purchases on Account

Freight In 72 2,450.00
Cash 11 2,450.00
Paid Freight

October 9 Sold Goods to PRISON Management worth P 521,400. Terms 2/10, 1/20, n/30.

Date
Particulars F Debit Credit
2017
October 9 Accounts Receivable 11 521,400
Sales 60 521,400
Sold Goods

October 11 Prison founded out that P 89,580 worth of goods bought from MALAYA were defective
and returned it.
Date
Particulars F Debit Credit
2017
October 11 Sales Returns and Allowances 62 89,580
Accounts Receivable 44 89,580
Returned Sold Goods

October 14 The said defective goods were received by Malaya. The cost of which is P 42,000 which
He also returned to REHAS Inc.

Date
Particulars F Debit Credit
2017
October 14 Accounts Payable 30 42,000.00
Purchase Returns and 74 42,000.00
Allowances
Returned purchased goods to
Malaya

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October 16 Paid the following Expenses: salaries- P 41,300, Utilities, P 63,700 and Advertising P 75,
400
Date
Particulars F Debit Credit
2017
October 16 Salaries Expense 76 41,300.00
Utilities Expense 77 63,700.00
Advertising Expense 78 75,400.00
Cash 10 180,400.00
Paid Various Expenses

October 19 Sold Merchandise to TAKAS Management, P 280,400 in Cash

Date
Particulars F Debit Credit
2017
October 19 Cash 10 280,400.00
Sales 60 280,400.00
Cash Sales

October 19 Collected 45% from Prison’s account

Date
Particulars F Debit Credit
2017
October 19 Cash 190,433.00
Sales Discount 3,886.00
Accounts Receivable 194,319.00
Collected its account

October 21 Purchased Merchandise worth P 65,800 in Cash

Date
Particulars F Debit Credit
2017
October 21 Purchases 65,800.00
Cash 65,800.00
Purchased goods

October 21 Paid REHAS Inc. of its account

Date
Particulars F Debit Credit
2017
October 21 Accounts Payable 30 55,000.00
Cash 10 55,350.00
Purchased Discount 73 1,650.00
Paid its account

October 23 Bought Office Supplies and Used right away in cash, P 8,500
Date
Particulars F Debit Credit
2017
October 23 Office Supply Expense 8,500.00
Cash 8,500.00
Bought Office Supply

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October 24 Thor has taken P 25,445 in the business

Date
Particulars F Debit Credit
2017
October 24 Thor, Drawing 51 25,445.00
Cash 10 25,445.00
Withdrawals made by Thor

October 27 Purchased Goods worth P 112,200 in cash

Date
Particulars F Debit Credit
2017
October 27 Purchases 71 112,200.00
Cash 10 112,200.00
Purchased goods in cash

October 31 Sold goods to KULUNGAN in Cash, P 390,500

Date
Particulars F Debit Credit
2017
October 31 Cash 10 390,500.00
Sales 60 390,500.00
Cash Sales

October 31 Upon checking of the products sold, KULUNGAN notice that 27,900 of the said goods
were defective and returned the items to Thor.
Date
Particulars F Debit Credit
2017
October 31 Sales Returns and Allowances 62 27,900.00
Cash 10 27,900.00
Returned Sold Goods

ADDITIONAL INFORMATION: MERCHANDISE INVENTORY A THE END OF THE PERIOD IS

ASSUMEDTO BE AMOUNTED TO P 58,600

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EXERCISES: PROBLEM 1:
The following are the March 2017 transactions of CARRIEDO, distributor of pillow cases and
comforters.
March 8 Purchased Furniture & Fixtures from Liberty Homes at a purchase price of P 108,800 less
4% trade Discounts, terms 3/5, 2/10, n/30.
March 11 Paid P 1,670 for the delivery cost of the above purchase
March 13 Sold Merchandise to LIBERTAD in the amount of P 20,800 on account.
March 15 Purchased 10 comforters from EDSA invoiced at 19,800. Terms: 3/10, 2/20, n/30
March 17 Received payments from LIBERTAD 50% on her account.
March 19 Paid salaries of staff, P 15,000
March 21 Sold to PUREZA on account, 5 Bed sheets @ 3,200 each set
March 24 Paid EDSA 40% of his account
March 26 Purchased P 12,600 worth of goods in cash
March 28 Withdrawal made by Carriedo, P 5,000
March 31 Paid water P 1,200, Electricity P 2,900, Telephone P 800 and salaries for the 2nd half
Required:
a.) Record the transactions in two column journal.
b.) Use the following chart of accounts in the recording

100 Cash 620 Sales Returns and Allowances

110 Accounts Receivable 700 Purchases
200 Furniture and Fixtures 710 Freight In
300 Accounts Payable 720 Purchase Discounts
500 CARRIEDO, Capital 730 Purchase Returns and Allowances
510 CARRIEDO, Withdrawal 800 Freight Out
600 Sales 810 Salaries Expense
610 Sales Discount 820 Utilities Expense

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POSTING TO HE LEDGER AND TRIAL BALANCE

POSTING FROM THE GENERAL JOURNAL TO THE GENERAL LEDGER

The T-Account Form is used in the classroom for preliminary analysis of transactions. In actual practice, a
formal book of account is used containing not only the account title, date and amount but also the page
reference (to identify the entry source), the account number and the balance of the account. All accounts are
compiled in one book called the General Ledger wherein a separate page is maintained for each account.
Each page is called a Ledger.

Posting is the process of transferring figures from the journal to the ledger account.

General Ledger is the collection of all ASSET, LIABILITY, OWNER’S EQUITY, REVENUE, and expense
accounts. This is a book of accounts in which data from transactions recorded in journals are posted and
thereby classified and summarized also called ledger.

Ledger is a tool for classifying and summarizing information about increases, decreases, and balances of
items in the chart of accounts.

A ledger format may be used where after the date column; there is a debit and credit column. The last column
gives a running balance after every posting made

NEED FOR A LEDGER

1. Items of similar items are grouped together

2. It is easier to locate the item if information about it is needed

On the month of September, 2017, THOR GENERAL MERCHANDISE has the following Trial
Balance.
THOR GENERAL MERCHANDISE
TRIAL BALANCE
SEPTEMBER 30, 2017
Account No. Account Title Debit Credit
10 Cash P 2,142,750
114 Accounts Receivable 99,190
30 Accounts Payable 885,450
50 Thor, Capital 1,356,490
P 2,241,940 P 2,241,940

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To illustrate the General Ledger of THOR GENERAL MERCHANDISE

GENERAL LEDGER
CASH ACCOUNT NO.10
Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 2,145,750
October 1 Thor Investment J1 1,125,000 3,267,750
October 7 Paid Freight J1 2,450 3,265,300
October 16 Paid Expenses J1 180,400 3,084,900
October 19 Cash Sales J1 280,400 3,365,300
October 19 Collected on amount J1 190,433 3,555,733
October 21 Purchase Goods J1 65,500 3,489,933
October 21 Payment of Account J1 53,350 3,436,583
October 23 Paid Office Supplies J1 8,500 3,428,083
Used
October 24 Thor, Withdrawal J1 25,445 3,402,638
October 27 Purchased Goods J1 112,200 3,290,438
October 31 Cash Sales J1 390,500 3,680,938
October 31 Returned Goods J1 27,900 3,653,038

ACCOUNTS RECEIVABLE ACCOUNT NO. 11

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 99,190
October 9 Sold Goods on Acct J1 521,400 620,590
October 11 Returned Sold Goods J1 89,580 531, 010
October 19 Collected on Account J1 194,319 336,691

FURNITURE AND FIXTURES ACCOUNT NO. 21

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 5 Purchase of Furniture J1
86,400 86,400
and Fixtures

ACCOUNTS PAYABLE ACCOUNT NO.30

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 85,450
October 5 Purchased Furniture J1
971,850
and Fixtures
October 7 Purchase on Account J1 86,400 1,068,850
October 14 Returned Goods J1 42,000 97,000 1,026,850
October 19 Payment of Account J1 55,000 971,850

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THOR, CAPITAL ACCOUNT NO. 50

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 1,1356,490
October 1 Thor Investment J1 1,125,000 2,481,490

THOR, DRAWING ACCOUNT NO. 51

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 24 Thor Withdrawal J1 25,445 25,445

SALES ACCOUNT NO.60

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 9 Sold Goods on Account J1 521,400 8521,400
October 19 Cash Sales J1 280,400 501,800
October 31 Cash Sales J1 390,500 1,192,300

SALES DISCOUNT ACCOUNT NO.61

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 19 Collected on Account J1 3,886 3,886

SALES RETURNS AND ALLOWANCES ACCOUNT NO. 62

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 11 Returned Sold Goods J1 89,580 89,580
October 31 Returned Goods J1 27,900 117,480

PURCHASES ACCOUNT NO. 71

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 7 Purchase Goods J1 97,000 977,000
October 21 Purchase Goods J1 65,800 162,800
October 27 Purchase Goods J1 112,200 275,000

FREIGHT IN ACCOUNT NO.72

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 7 Paid Freight J1 2,450 2,450

PURCHASE DISCOUNT ACCOUNT NO.73

Date Particulars F Debit Credit Debit Credit
(Balance) (Balance)
October 19 Purchased Goods J1 1,650 1,650

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PURCHASE RETURNS AND ALLOWANCES ACCOUNT NO.74

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 14 Returned Goods J1 42,000 42,000

SALARIES EXPENSE ACCOUNT NO.76

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 16 Paid Salaries J1 41,300 41,300

UTILITIES EXPENSE ACCOUNT NO.77

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 16 Paid Utilities J1 63,700 63,700

ADVERTISING EXPENSE ACCOUNT NO.78

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 16 Paid Advertising J1 75,400 75,400

OFFICE SUPPLIES ACCOUNT NO.79

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 23 Paid Office Supplies J1 8,500 8,500

4. Preparation of Trial Balance

A Trial Balance is a list of accounts with open balances in the general ledger. It proves the quality of the
debits and the credits in the general ledger.
The trial balance consists of two classifications: the trial balance of balances and the trial balance of totals.

The trial balance of balances contains account with open balances. An account is said to have a debit
balance if the credit total is more than the debit total. If the debit side and credit side are equal, the account
is a zero balance or closed account.

The other form of trial balance is the balance of totals. ‘in this form, the total of the debits and the total of
the credits of each account are listed.

Procedures in Trial Balance Preparation

1. Write the heading of the trial balance. The heading of the trial balance includes the following:
a.) The name of the business or the owner
b.) Title of the list or trial balance
c.) Date of the trial balance
2. Provide a column for the accounts and two-money columns - a debit and a credit
3. The accounts should be written in just one column arranged in the following sequence:
a.) Assets
b.) Liabilities
c.) Capital
d.) Income
e.) Expenses

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4. Write the amounts opposite the corresponding accounts under the debit money column, if the
account is a debit balance and under the credit money column, if the accounts is a credit balance.
5. Food the money columns. Double rule the totals.

Using the Ledger balances of THOR GENERAL MERCHANDISE, the trial balance will appear as
follows:
THOR GENERAL MERCHANDISE
TRIAL BALANCE
OCTOBER 31,2017
Account No. Account Title Debit Credit
10 Cash P 3,653,038
11 Accounts Receivable 336,691
21 Furniture and Fixtures 86,400
30 Accounts Payable
50 Thor, Capital 2,481,490
51 Thor, Drawing 25,445
60 Sales 1,192,300
61 Sales Discount 3,886
62 Sales Returns and 117,480
Allowances
71 Purchases 275,000
72 Freight In 2,45
73 Purchase Discount 1,650
74 Purchase Returns and 42,000
Allowances
76 Salaries Expense 41,300
77 Utilities Expense 63,700
72 Advertising Expense 75,400
79 Office Supplies Expense 8,500
P 4,689,290 P 4,689,290

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EXERCISES:
PROBLEM 1:
Note: Use the following CHART OF ACCOUNTS for Journalizing, Posting, Trial Balance, Closing
Entries and Post Closing Trial Balance
Code Account Title Code Account Title
100 Cash 610 Sales Discount
110 Accounts Receivable 620 Sales Returns and
Allowances
120 Notes Receivable 700 Cost of Goods Sold
130 Merchandise Inventory 710 Purchases
200 Office Equipment 720 Freight In
210 Furniture and Fixtures 730 Purchase Discounts
300 Accounts Payable 740 Purchase Returns and
Allowances
500 Sung, Capital 750 Freight Out
510 Sung, Drawing 760 Salaries Expense
600 Sales 770 Utilities Expense
780 Advertising Expense
790 Office Supplies
Expense

Use the following CHART OF ACCOUNTS for Financial Statement Preparation

Code Account Title Code Account Title
100 Cash 700 Cost of Goods Sold
110 Accounts Receivable 710 Purchases
120 Notes Receivable 720 Freight In
130 Merchandise Inventory 730 Purchase Discounts
200 Property, Plant and 740 Purchase Returns and
Equipment Allowances
300 Accounts Payable 750 Freight Out
500 Sung, Capital 760 Salaries
510 Sung, Drawing 770 Utilities
600 Sales 780 Advertising
610 Sales Discount 790 Office Supplies
620 Sales Returns and
Allowances

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SAM-SON-SUNG MERCHANDISING COMPANY

TRIAL BALANCE
OCTOBER 31, 2017
Account No. Account Title Debit Credit
100 Cash P 1,584,229
110 Accounts Receivable 349,220
210 Furniture and Fixtures 445,880
300 Accounts Payable 668,850
500 Sung, Capital 1,674,479
P 2,343,329 P 2,343,329

Mr. Sung owned a business named SAM-SON-SUNG MERCHANDISING COMPANY and had the
following transactions for the month of November, 2017.
November 2 Purchased Goods worth P 65,900 from SUH-JUN Enterprise, 35% on account. Terms 2/10,
n/30
November 4 Purchased Office Equipment worth P 59,000 on account
November 9 Sold Goods to BUN-LON, P 120,300, Term: 36% secured by a promissory note.
November 13 Returned the Office Equipment bought on November 4, P 21,100
November 15 Sold Goods to customer on account, P 128,110, Terms 3/10, n/30
November 17 Paid the following Expenses: Salaries- P 89,700, Advertising- P 90,180 and delivery P
88,590.
November 19 Paid SUH-JUN Enterprise on account
November 20 Sold goods to YOO-HO Builders worth P 77,800, Terms 3/5, n/30/
November 21 Paid Delivery charges on November 20 worth P 2,400
November 22 YOO-HOO returned 15% worth of goods sold
November 24 Purchased goods from LEE-SHA on account, P 100,200, terms 2/10.
November 25 Sung returned P 24,500 worth of goods
November 27 Sung paid LEE-SHA on account
November 29 Sung took a money amounting to P 15, 000

Required: Prepare the following:

1. Necessary Journal Entries
2. Posting to the Ledger
3. Trial Balance

“IT IS YOUR ATTITUDE AT THE BEGINNING OF A TASK THAT DETERMINES SUCCESS

OR FAILURE”- CORRINE DEWLOW

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FINANCIAL STATEMENTS

A complete set of basic financial statements includes the following components

a.) Income Statement (Statement of Comprehensive Income) – is a report which describes how to
business operated over a given period of time. (Usually one year)/ this accounting report shows the
operating performance of the business entity for a given period of time.

Statement of Cost Goods Sold

THOR GENERAL MERCHANDISE

Statement of Cost Goods Sold
For the month ended October 31, 2017

Thor Beginning Inventory P0

Add: Net Purchases
Purchases P 275,000
Add: Freight In __2,450
Total 277,450
Less Purchase Discount 1,650
Purchase Returns and Allowances 42,000 233,800
Total Goods Available for Sale 233,800
Less: Thor Ending Inventory 56,600
Cost of Goods Sold P 175,200

Income Statement
THOR GENERAL MERCHANDISE
Income statement
For the month ended October 31, 2017
Sales P 1, 192,300
Less: Sales Discount 3,886
Sales Returns and Allowances 117,480
Net Sales P 1,070,934
Less: Cost of Goods Sold 175,200
GROSS PROFIT P 895, 734
Less: Operating Expenses
Salaries P 41,300
Utilities 63,700
Advertising 75,400
Office Supplies 8,500
Total Operating Expenses 188,900
NET INCOME P 706,834

b. Statement of Owners Equity- it explains the activities for a period of time that led to a change in the
owner’s share over the net assets of the business.

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THOR GENERAL MERCHANDISE

Statement of Owner’s Equity
As of October 31, 2017
Thor, Capital, Beg P 2,481,490
Add: Net Income 706,834
Additional Investments 0
TOTAL P 3,188,324
Less: Thor, Drawing 25,445
THOR, CAPITAL END P 3, 162, 879

c.) Statement of Financial Position (Balance Sheet)- gives information about the financial position of the
business by showing the list of its assets (Cash and properties) and Liabilities (debts and obligations to pay)
and from which the net worth of the business representing equity or share of the owner could be determined.
-Provides a snapshot of the firm’s financial position at a specific point in time.
ACCOUNTING EQUATION (ASSETS = LIABILITIES + OWNER’S EQUITY)

THOR GENERAL MERCHANDISE

Statement of Financial Position
As of October 31, 2017

ASSETS
Current Assets:
Cash and Cash Equivalents P 3,653,038
Accounts Receivable 336,691
Merchandise Inventory 58,600
Total Current Assets: P 4,048,329
Non- Current Assets:
Property, Plant and Equipment 86,400
TOTAL ASSETS: P 4,134,729

LIABILITIES AND OWNER’S EQUITY

Current Liabilities:
Accounts Payable P 971,850

Owner’s Equity
Thor, Capital 3,162,879
TOTAL LIABILITIES AND OWNERS EQUITY P 4,134,729

d.) Statement of Cash Flow- is a basic component of the financial statements which summarizes the
operating, investing, and financing activities of an entity.
The statement of Cash Flow will enlighten one on how cash is being managed. A business should be able to
generate positive net cash flow especially from operation so that the obligations may be paid including
extinguishments of loans and cash withdrawals of owners. Cash flows are vital to the financial health of a
business. Too little cash or too much cash will affect the smooth flow of financial operation. Revenue should
easily be converted into cash so that disbursements could easily be paid. Some businesses fail because of its
inability to maintain a proper balance between receipts and disbursements. It is good for business to be able
to generate cash from operation much more than from financing or from investing activities. For short-run
planning, management strictly monitors the cash to ensure that cash inflow from operating activities is always
more than its cash outflow.

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Cash flow activities are either an inflow (source or receipt) which increases cash or an outflow (uses or
disbursement) which decreases cash. These cash activities are classified as: Operating Activities, Investing
and Financing Activities. From operating activities, an inflow of cash comes from revenue collections and
an outflow of cash goes for payment of expenses. From Investing Activities, an inflow of cash comes from
sale of Property, Plant and Equipment. From Financing Activities, cash inflow will come from loans extended
by creditors, or cash contributors made by investors or owners while cash outflow will mean cash paid to
creditors or withdrawn by the owner.
THOR GENERAL MERCHANDISE
Statement of Cash Flows
As of October 31, 2017
Cash flows from operating Activities:
Cash Received from Sales P 670,900
Cash Received from Customers 190,433
Cash Payments of Accounts Payable (53,350)
Cash refund from Sales Returns (27,900)
Cash Purchase of Goods (178,000)
Cash Paid for Freight to Supplier (2,450)
Cash Payment for Salaries (41,300)
Cash Payment for Utilities (63,700)
Cash Payment for Advertising (75,400)
Cash Payment for Office Supplies (8,500)
Net Cash Provided by Operating Activities P 410,733

Cash flows from Financing Activities:

Cash Investments made by Thor: P 1,125,000
Cash Withdrawals made by Thor: (25,445)
Net Cash Provided by Financing Activities 1,099,555
Total Cash Flows from all activities 1,510,288
Add: Cash Beginning 2,142,750
CASH BALANCE, OCTOBER 31,2017 P 3,653,038

e.) Notes to Financial Statements- are used to report information that does not fit into the body of
the statements in order to enhance the understandability of the statements.

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EXERCISES:
1. The following information pertains to NI-HOON Merchandising
Freight In P 172,000
Merchandise Inventory 1/1/2017 1,200,000
Merchandise Inventory 12/31/2017 1,900,000
Purchases 4,300,000
Purchase Returns and Allowances 129,000
Purchase Discounts 215,000
Required: Prepare the Cost of Goods Sold Statement for the Year Ended December 31, 2017

2. The partial income Statements of five different companies are as follows:

A B C D E
Net Sales 250,000.00 290,000.00 400,000.00
Merchandise Inventory, 1/1/2017 50,000.00 70,000.00 120,000.00
Net Purchases 80,000.00 160,000.00 390,000.00
Total Goods Available for Sale 110,000.00 160,000.00
Merchandise Inventory, 1/31/2017 40,000.00 30,000.00 70,000.00
Cost of Goods Sold 140,000.00 230,000.00 380,000.00
Gross Profit 50,000.00 40,000.00 160,000.00

3. Accounts selected from December 31,2017 Trial Balance of RAM-YUN Trading listed
below
Sales P 920,000
Purchases P 400 ,000
Merchandise Inventory, Beginning P 90,000
Merchandise Inventory, End P 75,000
Salaries Expense P 120,000
Supplies Expense P 5,000
Depreciation Expense P 10,000
Sales Returns and Allowances P 8,000
Insurance Expense P 2,000
Sales Discounts P 4,000
Freight Out P 6,000
Purchase Returns and Allowances P 3,000
Representation Expense P 7,000
Purchase Discount P 9,000
Freight In P 12,000
Utilities Expense P 15, 000
Required:
1. Prepare a Statement of Cost of Goods Sold and Income Statement

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CLOSING ENTRIES & POST CLOSING TRIAL BALANCE

CLOSING ENTRIES

At the end of the accounting period, all nominal or temporary accounts (revenues and expenses)
need to be closed so that there will be a fresh start for the next accounting period. Their balances are not
carried from one period to another unlike the real or permanent accounts. The balance of each revenues
and expenses accounts are transferred by a journal entry to a temporary account called Income and
Expense Summary or Income Summary. Since revenues have credit balances, these accounts are
debited balances, these are to be credited and Income & Expense Summary is debited.
Ultimately, the balance of the Income Summary account is then transferred to the owner’s capital
account. The process of closing the nominal accounts and to transfer its balance to the capital account is
referred to as closing entries. After the closing entries are posted to the general ledger accounts, all
nominal accounts will have zero balance. Closing entries are recorded to the general journal and posted
to the general ledger accounts. It is to be noted that only the balances of nominal or temporary accounts
need to be closed, the balances of real or permanent accounts are carried over to another period; hence
they are not to be closed.

Procedures in Closing Entries

1. Close the Revenue accounts and all credit accounts and transfer its balance to the Income Summary
Account.
2. Close the Expense accounts and all debit accounts and transfer its individual balances to the Income
Summary Account.
3. Close the Income Summary Account and transfer its balance to the Capital Accounts.
CLOSING ENTRIES Page 1
Date
Particulars F Debit Credit
2017
October 31 Merchandise Inventory, End 13 58,600
Sales 60 1,192,300
Purchase Discount 73 11,650
Purchase Returns and 74 42,000
Allowances
Income Summary 52 P 1,294,550
To close accounts with credit balances
and to establish the ending

October 31 Income Summary 52 587,716

Sales Discount 61 P 3,886
Sales Returns and Allowances 62 117,480
Purchases 71 275,000
Freight In 72 2,450
Salaries Expense 76 41,300
Utilities Expense 77 63,700
Advertising Expense 78 75,400
Office Supplies Expense 79 8,500
To close accounts with debit balances

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October 31 Income Summary 52 706,834

Thor, Capital 50 706,834
To close the income summary account

October 31 Thor, Capital 50 25,445

Thor, Drawing 51 25,445
To close the withdrawal account

After the preparation of Closing Entries, the next step is to post all entries made to the general ledger.

GENERAL LEDGER
CASH ACCOUNT NO.10
Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 2,145,750
October 1 Thor Investment J1 1,125,000 3,267,750
October 7 Paid Freight J1 2,450 3,265,300
October 16 Paid Expenses J1 180,400 3,084,900
October 19 Cash Sales J1 280,400 3,365,300
October 19 Collected on amount J1 190,433 3,555,733
October 21 Purchase Goods J1 65,500 3,489,933
October 21 Payment of Account J1 53,350 3,436,583
October 23 Paid Office Supplies J1 8,500 3,428,083
Used
October 24 Thor, Withdrawal J1 25,445 3,402,638
October 27 Purchased Goods J1 112,200 3,290,438
October 31 Cash Sales J1 390,500 3,680,938
October 31 Returned Goods J1 27,900 3,653,038

ACCOUNTS RECEIVABLE ACCOUNT NO. 11

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 99,190
October 9 Sold Goods on Acct J1 521,400 620,590
October 11 Returned Sold Goods J1 89,580 531, 010
October 19 Collected on Account J1 194,319 336,691

MERCHANDISE INVENTORY ACCOUNT NO. 13

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
To establish the merchandise
October 31 CE1 58,600 58,600
inventory end

FURNITURE AND FIXTURES ACCOUNT NO. 21

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 5 Purchase of Furniture J1
86,400 86,400
and Fixtures

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ACCOUNTS PAYABLE ACCOUNT NO.30

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 85,450
October 5 Purchased Furniture J1
971,850
and Fixtures
October 7 Purchase on Account J1 86,400 1,068,850
October 14 Returned Goods J1 42,000 97,000 1,026,850
October 19 Payment of Account J1 55,000 971,850

THOR, CAPITAL ACCOUNT NO. 50

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 1 Beginning Balance 1,1356,490
October 1 Thor Investment J1 1,125,000 2,481,490
October 31 To close Income Summary CE1 706,834 3,188,324
October 31 To close withdrawal account CE1 25,445 3,162,879

THOR, DRAWING ACCOUNT NO. 51

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 24 Thor Withdrawal J1 25,445 25,445
October 31 To close withdrawal account CE1 25,445 0

INCOME SUMMARY ACCOUNT NO. 52

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 31 To close accounts with
credit balances and to
establish the merchandise
CE1 1,294,550 1,294,550
inventory end
October 31 To close accounts with
debit balances CE1 587,716 706,834
October 31 To close the income
summary account
CE1 706,834 0

SALES ACCOUNT NO.60

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 9 Sold Goods on Account J1 521,400 8521,400
October 19 Cash Sales J1 280,400 501,800
October 31 Cash Sales J1 390,500 1,192,300
October 31 To close sales CE1 1,192,300 0

SALES DISCOUNT ACCOUNT NO.61

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 19 Collected on Account J1 3,886 3,886
October 31 To close the account CE1 3,886 0

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SALES RETURNS AND ALLOWANCES ACCOUNT NO. 62

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 11 Returned Sold Goods J1 89,580 89,580
October 31 Returned Goods J1 27,900 117,480
October 31 To close the account CE1 117,480 0

PURCHASES ACCOUNT NO. 71

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 7 Purchase Goods J1 97,000 977,000
October 21 Purchase Goods J1 65,800 162,800
October 27 Purchase Goods J1 112,200 275,000
October 31 To close the account CE1 275,000 0

FREIGHT IN ACCOUNT NO.72

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 7 Paid Freight J1 2,450 2,450
October 31 To close the account CE1 2,450 0

PURCHASE DISCOUNT ACCOUNT NO.73

Date Particulars F Debit Credit Debit Credit
(Balance) (Balance)
October 19 Purchased Goods J1 1,650 1,650
October 31 To close the account CE1 1,650 0

PURCHASE RETURNS AND ALLOWANCES ACCOUNT NO.74

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 14 Returned Goods J1 42,000 42,000
October 31 To close the account CE1 42,000 0

SALARIES EXPENSE ACCOUNT NO.76

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 16 Paid Salaries J1 41,300 41,300
October 31 To close the account CE1 41,300 0

UTILITIES EXPENSE ACCOUNT NO.77

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 16 Paid Utilities J1 63,700 63,700
October 31 To close the account CE1 63,700 0

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ADVERTISING EXPENSE ACCOUNT NO.78

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 16 Paid Advertising J1 75,400 75,400
October 31 To close the account CE1 75,400 0

OFFICE SUPPLIES ACCOUNT NO.79

Debit Credit
Date Particulars F Debit Credit
(Balance) (Balance)
October 23 Paid Office Supplies J1 8,500 8,500
October 31 To close the account CE1 8,500 0

POST- CLOSING TRIAL BALANCE

To test that the general ledger account are in balance sheet before the transactions of the next
accounting period are posted, a post-closing trial balance should be prepared.

A trial balance, which is prepared after the temporary or nominal accounts (revenues, expenses, and
drawings) have been closed, is referred to as Post Closing Trial Balance. The accounts that are listed
in this trial balance are only permanent or real accounts.

The purpose of preparing this trial balance is to prove that the remaining permanent accounts are in
balance as a fresh start for the next accounting period.

Using the Ledger Balances after posting the closing entries of THOR GENERAL MERCHANDISE,
the Post Closing Trial Balance will appear as follows.

THOR GENERAL MERCHANDISE

POST-CLOSING TRIAL BALANCE
OCTOBER 31, 2017
Account No. Account Titles Debit Credit
10 Cash P 3,653,038.00
11 Accounts Receivable 336,691.00
13 Merchandise Inventory 58,600.00
21 Furniture and Fixtures 86,400.00
30 Accounts Payable 971,850.00
50 Thor, Capital 3,162,879.00
P 4,134,729.00 P 4,134,729.00

“FIND THE COURAGE TO LET GO OF WHAT YOU CANNOT CHANGE”

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