2nd QTR SLM FundamentalsABM1 Complete
2nd QTR SLM FundamentalsABM1 Complete
FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT 1
Quarter 2
MODULE 1:
Nature Transaction of Merchandising
Business
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the
module:
As a facilitator you are expected to orient the learners on how to use this module. You
also need to keep track of the learners' progress while allowing them to manage their own
learning. Furthermore, you are expected to encourage and assist the learners as they do
the tasks included in the module.
The hand is one of the most symbolized parts of the human body. It is often used to depict
skill, action and purpose. Through our hands we may learn, create and accomplish.
Hence, the hand in this learning resource signifies that you as a learner is capable and
empowered to successfully achieve the relevant competencies and skills at your own
pace and time. Your academic success lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your
answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you
are not alone.
7. We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
WEEK
1 Nature Transactions of
Merchandising Business
I
This module was written for you to accomplish at home. It was carefully designed so
that you can work at your own pace and allow self-discovery of the concept through activities
that you will perform. Activities were also selected to allow independent learning which also
aims to develop students’ reading comprehension skills through understanding written texts.
This is designed for you learners so to be able to:
1. Describes the nature of transactions in merchandising business.
PRE-TEST:
Directions: Write T if the statement is true and F if it is false.
__________ 1. In Perpetual inventory system the inventory records are updated periodically
base on physical inventory counts.
__________ 2. In Periodic inventory system cost of goods sold is calculated only at the end of
the accounting period.
__________ 3. The perpetual system is a more suitable system for companies selling high-
priced products.
__________ 4. In periodic inventory system, cost of goods sold is calculated at the time of each
sale.
__________ 7. The goods that a company buys in order to resell are known as merchandise.
__________ 9. Seller is a person or company that sells goods in large quantities at low prices,
typically to retailers.
__________ 10. Retailer is a person or business that sells goods to the public in relatively small
quantities for use or consumption rather than for resale.
D
Businesses are either classified as product-oriented firms, service-oriented
firms, or a combination of both. Now we're going to focus on product-oriented firms
and appreciate the essence of the merchandising business.
1. Wholesaler - a person or company that sells goods in large quantities at low prices,
typically to retailers.
2. Retailer - a person or business that sells goods to the public in relatively small quantities
for use or consumption rather than for resale.
MERCHANDISING OPERATIONS
In a merchandising business, two main activities are involved, namely, buying and selling.
There are also two points of view considered in the documentation of the merchandising
business transactions. These are the points of view of both the buyer and the seller.
Since a merchandising company purchases products for sale in the ordinary course of its
business, the goods purchased form part of the goods available for sale. The inventory of goods
is therefore an important factor in the determination of these goods as well as the cost of sales.
The two alternative methods that can be used to document transactions relating to a
company's inventory of goods are the periodic system and the perpetual system.
For companies selling products with various low-priced objects, the periodic system may have
a more suitable system to use. The sales transactions resulting from the selling of these low-
priced goods are high. As such, it is not possible to track from the records the cost of each
small item every time the sale is over. For example, a supermarket cannot track the cost of
every bar of soap or bottle of shampoo sold. Businesses selling low-priced products typically
calculate the cost of goods sold at the end of the accounting period.
Under the periodic system, transactions relating to the acquisition of inventories are
recorded accordingly as purchases, purchase discounts and purchase returns and allowances.
The cost of transporting the goods shouldered by the purchaser shall be recorded as freight-
in. In addition, transactions relating to the selling of inventories are reported accordingly as
sales, discounts on sales and returns on sales and allowances. The cost of shipping the goods
shouldered by the seller shall be reported as freight-out or cost of delivery.
2. The Perpetual System
The perpetual system is a more suitable system for companies selling high-priced
products. Car dealers and expensive watch stores make few sales every day. These sales are
small and, because the price per item is material, the cost of each item sold can be recorded
as the cost of the product sold per sales transaction. Thus, the running balance of
inventories on hand and the cost of sales are continuously seen. At the end of the accounting
period, the balance of the final inventory should be the same as the actual physical count,
unless there is a fraud, obsolescence or spoilage of goods.
Note: Whatever inventory system a company chooses to use, either the periodic system
or the perpetual system, it should produce the same final inventory and net revenue for
the company.
Goods that a company buys in order to resell are known as merchandise.
A merchandising business is one that buys and sells goods in order to make a profit
Manufacturing company buys raw materials and transforms them into finished
products for sale.
For companies selling products with various low-priced objects, the periodic
system may have a more suitable system to use.
The perpetual system is a more suitable system for companies selling high-priced
products.
Inventory records are updated periodically based on physical inventory counts.
The perpetual inventory systems provide a continuous record of Merchandise
Inventory and Cost of Goods Sold.
Purchase Invoice should support each credit purchase.
E
Learning Task 1: Check Your Understanding
1. What is a good?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
2. What is a merchandising firm?
____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
__________ 4. Seller is a person or company that sells goods in large quantities at low prices,
typically to retailers.
__________ 5. Retailer is a person or business that sells goods to the public in relatively small
quantities for use or consumption rather than for resale.
__________ 6. In Perpetual Inventory System, the inventory records are updated periodically
base on physical inventory counts.
__________ 7. In Periodic inventory system cost of goods sold is calculated only at the end of
the accounting period.
__________ 8. The perpetual system is a more suitable system for companies selling high-
priced products.
__________ 9. In periodic inventory system, cost of good sold is calculated at the time of each
sale.
Student:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Answer Key
SELF LEARNING MODULE
FUNDAMENTALS OF ABM1
SECOND QUARTER
MODULE 2:
Records Transaction of Merchandising
Business
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:
As a facilitator you are expected to orient the learners on how to use this module. You also need
to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
The hand is one of the most symbolized parts of the human body. It is often used to depict skill,
action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand
in this learning resource signifies that you as a learner is capable and empowered to successfully
achieve the relevant competencies and skills at your own pace and time. Your academic success
lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your
answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you
are not alone.
7. We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
WEEK
Records Transactions of
2 Merchandising Business
I
This module focus on merchandising business. This is designed for you learners so to
be able to:
D
A merchandising business is a type of business that buys and sells goods in order to
make a profit. The goods that they buy and sell are called merchandise.
Merchandise inventory is the key factor in determining cost of sales.
2. Periodic inventory is primarily used by businesses that sell relatively inexpensive goods
and that are yet to utilize computerized scanning systems for analyzing goods sold. Its
characteristic is that no entries are made to the inventory account as the merchandise is
bought and sold. Only at the end of the period, when the inventory is counted, will entries
be made into the inventory account to establish its proper balance.
For this lesson, perpetual inventory system is assumed in the examples. There are
additional accounts that must be added to a merchandising company’s chart of accounts:
Merchandise inventory -to account for the value of merchandise held for sale
Sales -to account for the sale of merchandise at the sales price.
Sales returns and allowances -to account for returned and damaged merchandise
Sales discounts -to account for discounts offered to customers for prompt payment.
Cost of goods sold -to account for the cost of merchandise sold
Shipping expense -to account for the cost of shipping merchandise to customers
Payment on account - a purchase made which has not been paid yet
Receipt on account - a sale which has not been received yet
Take note: Merchandise is often purchased on account. Many vendors offer a discount if
the invoice is paid within a specified period of time that is less than the full credit term
(payment due date).
It is usually stated like this - 3/10, n/45 - read as “Three ten, net forty-five”, means
that the buyer will get 3 percent discount if the invoice is paid within 10 days of the invoice
date, if not the total amount is due within 45 days.
The discount is deducted directly from the merchandise inventory account. The effect of
a purchase discount is to reduce the cost of the merchandise purchased. It is accomplished by
crediting Merchandising Inventory.
Assuming that Avida Clothing Co. Pays the invoice on Jan 23 and no merchandise has
been returned or granted an allowance.
This is how it would look like in a journal entry:
xx Accounts Payable – Fabshoppe 35,000
Cash 34,300
Merchandise Inventory 700
Now, try to make a journal entry granting that there was a purchase return in reference
to the example on purchase returns. Assuming that Avida Clothing Co. Pays the invoice on
Jan 23 with an allowance for 10 pieces of damaged clothes.
This is how it would look like in a journal entry:
E
Learning Task 1:
Apr. 1 Sold merchandise foe P3,000, with credit terms n/30; invoice dated April 1. The cost of the
merchandise, which had cost of the merchandise is P1,800.
Apr. 4 The customer in the April 1 sale returned P300 of merchandise for full credit. The
merchandise, which had cost P180, returned to inventory.
Apr. 8 Sold merchandise for P1,000, with credit terms of 1/10, n/30; invoice dated April 8. Cost of
the merchandise is P700.
Apr. 11 Received payment for the amount due from the April 1 sale less the return on April 4.
A
Learning Task 2:
Multiple Choice: Read and understand the following statements Write the letters of
the CORRECT answer on the separate sheet of paper.
1. Which among these types of inventory method continuously updates the inventory
account?
A. Periodic Inventory C. Yearly Inventory
B. Perpetual Inventory D. All of these are correct
2. Which of these is added in merchandising company’s chart of accounts to account for
discounts offered to customers for prompt payment?
A. Cost of goods sold C. Sales
B. Merchandise inventory D. Sales discount
3. It is the primarily used by business that sell relatively inexpensive goods.
A. Journal C. Perpetual Inventory
B. Periodic Inventory D. None of these are correct
4. Complete the journal entry with the correct account titles/names and/or amounts.
On Feb 27, G. Felicio paid 1,200.
27 Cash 1,200
? 1,200
MODULE 3:
Posting of Transaction of Merchandising
Business in the General and Subsidiary Ledgers
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body
of the module:
As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to manage
their own learning. Furthermore, you are expected to encourage and assist the
learners as they do the tasks included in the module.
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.
7. We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
Week Posting of Transactions of
Understand and solve for the Cost of Good Sold under periodic inventory
system
Post transactions of a merchandising business in the general and subsidiary
ledgers
What I know
ACTIVITY NO. 1:
I. TRUE or FALSE
Direction: Before each statement, write TRUE if the statement is correct or FALSE
if the statement is incorrect.
Direction: Give the journal entries for the following transactions of FABM
Company, a merchandising business under perpetual inventory system.
What is new
Last module, we discussed the two inventory methods of a merchandising
business: the perpetual inventory and periodic inventory system. On our last
lesson, we focus on how to record and journalize transactions using perpetual
inventory system.
For this lesson, we will learn more about the periodic inventory system.
INVENTORY SYSTEMS
TO ILLUSTRATE:
Magaling Computer Store started its operations on January 2, 2016. The store
is located in Sikat Mall in Bicol. The owner invested PHP500,000 to start the
business. On January 3, 2016, Magaling purchased 20 units of computers on
account for PHP10,000 each. Upon delivery of the units, the supplier, Delta,
Inc., issued Charge Invoice No. 145 to Magaling.
PURCHASE RETURNS AND ALLOWANCES
damaged or defective
of inferior quality
not in accord with the purchaser’s specifications
The purchaser initiates the request for a reduction of the balance due through
the issuance of a debit memorandum. The debit memorandum is a document
issued by a buyer to inform a seller that the seller’s account has been debited
because of unsatisfactory goods.
TO ILLUSTRATE:
Out of the 20 computer units purchased last January 3, 2016, it was found after
inspection on the same day that one unit was damaged during shipment.
Magaling issued a debit memorandum (DM 01) and informed the supplier that
it will return the one damaged item.
ACCOUNTING FOR FREIGHT COSTS
The sales agreement should indicate whether the seller or the buyer is to pay the
cost of transporting the goods to the buyer’s place of business. The two most
common arrangements for freight costs are FOB SHIPPING POINT AND FOB
DESTINATION.
TO ILLUSTRATE:
If the terms is FOB Shipping Point, the entry to record, assuming Magaling paid
the common carrier in cash on January 4, 2016 is :
Credit terms (specify the amount of cash discount and time period during which
a discount is offered) may permit the buyer to claim a cash discount for the
prompt payment of a balance due. If the credit terms show 2/10, n/30 means a
2% discount is given if paid within 10 days (called the discount period); otherwise,
the invoice is due in 30 days.
The buyer calls this discount a purchase discount.
A purchase discount is normally based on the invoice cost less returns and
allowances, if any.
TO ILLUSTRATE:
The credit terms for the purchase of 20 computer units (total cost PHP200,000)
is 2/10, n/30. This means that if Magaling pays on or before January 13, 2016,
it is entitled to a 2% discount, otherwise Magaling will have to pay the full amount
on or before February 4, 2016 (30 days after purchase). On January 10, 2016,
Magaling paid the account in full with Delta.
Revenues are reported when earned in accordance with the revenue recognition
principle, and in a merchandising company, revenues are earned when the
goods are transferred from seller to buyer.
All sales should be supported by a document such as a cash register tape (to
provide evidence of cash sales) or cash receipt, or office receipt for cash sales,
and charge invoice for credit sales, or sales on account.
One entry is made with each sale:
Debit — Accounts Receivable (if a credit sale) or Cash (if a cash sale) which
increases assets for the sales amount
Credit — Sales which increases revenues
The sales account is credited only for sales of goods held for resale. Sales of
assets not held for resale (such as equipment, buildings, land, etc.) are credited
directly to the asset account.
TO ILLUSTRATE :
1/10/2016 Official Receipt (OR) No. 001 Sold two units for cash to Marie Cruz
for PHP36,000 (PHP18,000 per unit), FOB Destination
1/15/2016 Charge Invoice (ChI) No. 001 Sold five units on account to Rafael
Reyes for PHP97,500 (PHP19,500 per unit) with terms 3/10, n/30, FOB
Shipping Point
FREIGHT TERMS: FOB DESTINATION — SELLER PAYS FREIGHT
An entry is made when seller pays the freight to deliver goods to a customer or
buyer. If the buyer will pay for the freight, no entry is made.
Debit — Delivery Expense and credit — Cash or Accounts
Payable TO ILLUSTRATE:
Take note that no entry will be made regarding the sale to Rafael Reyes since
the term is FOB Shipping Point.
On January 16, 2016, Rafael Reyes returned one unit of the computers
purchased last January 15, 2016 under Charge Invoice 001. The unit returned
was in good condition. However, Rafael Reyes returned the unit because it is
one unit more than what they need. The return was approved and accepted by
Magaling. The price will be deducted from the account of Rafael Reyes.
SALES DISCOUNTS
1. A sales discount is the offer of a cash discount to encourage customers to pay the
balance at an earlier date.
2. An example of a discount term is commonly expressed as: 2/10, n/30, which
means that the customer is given 2% discount if payment is made within 10
days. After 10 days there is no discount, and the balance is due in 30 days.
3. Sales Discounts is a contra revenue account with a normal debit balance.
TO ILLUSTRATE:
Notice in the entry on January 23, 2016 that the cash received from Jun Cruz was net of the 2%
discount because he made the payment within the discount period. Take note that the discount
period in this case was from January 19, 2016 to
*The amount indicated here is not connected with the journal entries prepared above. This is for
illustration purposes only.
The Cost of Goods Sold under the periodic inventory system is determined at the
end of the period (monthly or yearly) by a short computation, as follows:
In a periodic inventory system, separate ledger accounts are maintained for various items
composing the cost of goods sold (Purchases, Purchase Returns & Allowances, Freight-In, Purchase
Discounts). At the end of the accounting period, a physical count of inventory is necessary to
establish the ending balance of the inventory.
ACTIVITY NO. 3:
The term of the purchases is FOB Shipping Point with the amount of ₱3,000
SAMPLE ILLUSTRATIONS
For the month of January 2016, the special journals of Agila are shown below:
Sales Journal
DATE DESCRIPTION (CUSTOMER Charge Invoice Debit Credit
NAME) or Sales
Accounts Receivable Sales
Invoice No.
01/05/2016 Dax 1 2,102 2,102
01/07/2016 Marie 2 3,060 3,060
01/09/2016 Astro 3 1,475 1,475
CANCELLED 4
01/11/2016 PNSC 5 8,960 8,960
01/15/2016 PECO 6 7,125 7,125
01/16/2016 Ipedcare 7 4,560 4,560
01/19/2016 Te 8 1,250 1,250
01/21/2016 Joshua 9 3,125 3,125
01/22/2016 Joseph 10 4,510 4,510
01/24/2016 Jesper 11 2,080 2,080
01/28/2016 Nelcie 12 1,180 1,180
01/29/2016 Ryan 13 900 900
01/30/2016 Arlen 14 3,450 3,450
01/30/2016 Art 15 1,478 1,478
Total for January 2016 45,255 45,255
x Accounts 45,255
x Receivable
Sales 45,255
CASH RECEIPTS JOURNAL
DESCRIPTION Debit Credit Credit Debit
DATE O.R. No.
(PARTICULARS) Cash Sales Accounts Sales Discount
Receivable
1/2/2016 Ana 1 1,000 1,000
1/4/2016 Peter 2 1,890 1,890
1/6/2016 Jun 3 1,289 1,289
1/7/2016 Karen 4 3,456 3,456
1/7/2016 Jade 5 1,290 1,290
1/8/2016 Patrick 6 3,876 3,876
1/8/2016 Jane 7 4,561 4,561
1/10/2016 May 8 5,600 5,600
1/15/2016 April 9 8,060 8,960 900
1/16/2016 Ana 10 4,235 4,235
1/17/2016 Juan 11 2,010 2,010
1/21/2016 Rafael 12 3,410 3,410
1/22/2016 May 13 893 893
1/23/2016 Teh 14 1,250 1,250
1/24/2016 Jun 15 3,452 3,452
1/24/2016 Geo 16 2,102 2,102
1/25/2016 Angela 17 1,000 1,000
1/29/2016 Clyde 18 345 345
1/30/2016 Joe 19 4,000 4,510 510
TOTAL 53,719 38,307 16,822 1,410
x Cash 53,719
x
Sales Discount 1,410
Sales 38,307
Accounts Receivable 16,822
PURCHASE JOURNAL
Dat Account Title and Explanation R Charge Invoice or Amount
Sales Invoice
e e No. (from supplier)
f
1/2/2016 XYS Clothing SI 102 228,560
1/10/2016 RTW Super Store SI611 133,070
1/29/2016 Dresses Unlimited SI341 98,120
TOTAL 459,750
x Purchases 459,750
x
Accounts Payable 459,750
CASH DISBURSEMENTS JOURNAL
Check Purchase
Cash Account Salarie Supplies Advertising R
Discount
DATE DESCRIPTION / s s e
(PARTICULARS) n
Vouch
t
er a
No. l
CREDIT DEBIT DEBIT DEBIT DEBIT D CREDIT
E
B
I
T
1/2/16 St Realty Rental for CV01 10,000 1
Jan-Feb 2016 0
,
0
0
0
1/5/16 Del Supplies- office CV02 3,500 3,500
supplies
1/15/16 XYS Clothing-
CV03 220,000 228,560 8,560
payment of
account
1/16/16 Jean Guzman-
CV04 7,500 7,500
salary Jan 1-15,
2016
1/16/16 Sonic Promo- CV05 4,800 4,800
Advertising
1/25/16 Goldmic Supplies CV06 1,990 1,990
1/29/16 Jean Guzman-
CV07 7,500 6,500
salary Jan 16-30,
2016
TOTAL 254,290 228,560 14,000 5,490 4,800 10,000 8,560
Cash 254,290
Purchase Discount 8,560
In addition to the above special journals, the company maintains a general
journal. The General Journal had the following entries for January
General Journal
D Account Title and Explanation R Debit Credit
a e
t f
e
6 Cash 500,000
Agila, Capital 500,000
To record initial investment
Cash 150,000
To record purchase of vehicle
Step 3. Posting to the General Ledger
Reminders: Nothing should ever get posted to the ledgers without first being entered in a journal.
GENERAL LEDGER
Account: Cash Account No. : 1000
Date Item Debit
R Credit Balance
e
f
1/2/16 Investment of owner 500,000 500,000
Purchase of Vehicle 150,000 350,000
From the Cash receipts Journal 53,719 403,719
From the Cash Disbursement Journal 254,290 149,429
GENERAL LEDGER
Account: Accounts Receivable Account No. : 1200
Date Item RDebit Credit Balance
e
f
From the Sales Journal 45,255 45,255
From the Cash Receipts Journal 16,822 28,433
GENERAL LEDGER
Account: Transportation Equipment Account No. : 1680
Date Item RDebit Credit Balance
e
f
General Journal - Purchase of vehicle 150,000 150,000
GENERAL LEDGER
Account: Accounts Payable Account No. : 2000
Date Item RDebit Credit Balance
e
f
From the Purchase Journal 459,750 459,750
From the Cash Disbursements Journal 228,560 231,190
GENERAL LEDGER
Account: Agila, Capital Account No. : 3000
Date Item Debit
R Credit Balance
e
f
Initial Investment – Gen Journal 500,000 500,000
GENERAL LEDGER
Account: Sales Account No. : 4100
Date Item Debit
R Credit Balance
e
f
From the Sales Journal 45,255 45,255
From the Cash Receipts Journal 38,307 83,562
GENERAL LEDGER
Account: Sales Discount Account No. : 4102
Date Item RDebit Credit Balance
e
f
From the Cash Receipts Journal 1,410 1,410
GENERAL LEDGER
Account: Purchases Account No. : 5100
Date Item Debit
R Credit Balance
e
f
From the Cash Receipts Journal 459,750 459,750
GENERAL LEDGER
Account: Purchase Discount Account No. : 5102
Date Item Debit
R Credit Balance
e
f
From the Cash Disbursement Journal 8,560 8,560
GENERAL LEDGER
Account: Salaries Expense Account No. : 6100
Date Item Debit
R Credit Balance
e
f
From the Cash Disbursement Journal 14,000 14,000
GENERAL LEDGER
Account: Supplies Expense Account No. : 6150
Date Item Debit
R Credit Balance
e
f
From the Cash Disbursement Journal 5,490 5,490
GENERAL LEDGER
Account: Advertising Expense Account No. : 6400
Date Item RDebit Credit Balance
e
f
From the Cash Disbursement Journal 4,800 4,800
GENERAL LEDGER
Account: Rental Expense Account No. : 6300
Date Item Debit
R Credit Balance
e
f
From the Cash Disbursement Journal 10,000 10,000
What is it
ACTIVITY NO. 4: Modified Word Search Puzzle
Direction: Let us check your knowledge to our topic. Let’s create our own 10x10
word search puzzle! Read the questions and fill in the correct answers in our
puzzle according to the position and details on the table below.
GENERAL JOURNAL
Date Description PDebit Credit
R
A 1 Cash 200,000
p
r
ABC, Capital 200,000
To record initial investment of A. Cruz
5 Purchases 60,000
Accounts Payable 60,000
To record purchase of 6 units of PC @
10,000 each
1 Accounts Payable 10,000
0
Purchase Returns & Allowances 10,000
To record return of (1) defective computer
2 Cash 120,000
1
Sales 120,000
To record cash sale with OR#: 001
3 Cash 120,000
0
Accounts Receivable 120,000
To record cash payment of client with SI#:
002
3 Purchases 30,000
0
Cash 30,000
To record purchase of 3 units of PC @
10,000 each
3 Cash 60,000
0
Sales 60,000
To record cash sale with OR#: 003
Assessment
ACTIVITY NO. 6: MULTIPLE CHOICE
Direction: Read and understand the questions. Choose the letter of the correct answer.
1. The inventory method that continuously update the inventory account?
A. Periodic Inventory C. Yearly Inventory
B. Perpetual Inventory D. All of these are correct
3. The primary difference between the periodic and perpetual inventory systems is that a
A. Periodic system records the cost of the sale on the date the sale is made
B. Periodic system determines inventory at the end of accounting period
C. Periodic system provides an easy means to determine inventory shrinkage
D. Periodic system keeps a record showing the inventory on hand at all times
5. Result when customers are dissatisfied with merchandise and are allowed to return the goods to the
seller for credit or a refund
A. Sales Allowance C. Sales Refund
B. Sales Return D. Sales Defect
7. Ownership over the goods is transferred to the buyer once it is out of the premises of the seller.
A. FOB Freight In C. FOB Destination
B. FOB Shipping Point D. Owner’s Capital
8. To record cash sales on a merchandising business. The entry will be debit - Cash and credit – __.
A. Accounts Payable C. Purchases
B. Service Revenue D. Sales
9. It holds account information that is needed to prepare the company's financial statements, and transaction
data is segregated by type into accounts for assets, liabilities, owners' equity, revenues, and expenses.
A. General Ledger C. General Journal
B. Cash Disbursement Register D. Special Ledger
10. Items on the Purchase Journal are credited to the accounts payable and credit to:
A. Purchases C. Cash
B. Merchandise Inventory D. Accounts Receivable
11. It is a group of similar accounts whose combined balances equal the balance in a specific general
ledger account.
A. Subsidiary Ledger C. Journal Entry
B. General Ledger D. General Journal
12. The process of transferring the entries from journal to respective ledger accounts is called
A. Ledger Posting C. Journal Entry
B. Journalizing D. T-Account
13. Nothing should ever get posted to the ledgers without first being entered in a .
A. Journal C. Income Statement
B. Worksheet D. Balance Sheet
14. In periodic inventory system, what is done at the end of accounting period to determine the ending
balance of the inventory?
A. Physical Counting C. Computation
B. Checking of Balance D. Warehouse Cleaning
15. In periodic inventory method, inventory at the beginning of a period, adds new inventory
purchases during the period and deducts ending inventory to derive the
.
A. Cost of Goods Available C. Cost of Inventory
B. Cost of Goods Sold D. Cost of Purchases
ACTIVITY 6
1b
2a
3b
4c
5b
6b
7b
8d
9a
10 a
11 a
12 a
13 a
14 a
15 b
Answer Key
Reference
MODULE 4:
Nature Transaction of Merchandising
Business
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration
their needs and circumstances.
In addition to the material in the main text, you will also see this box in the
body of the module:
As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to
manage their own learning. Furthermore, you are expected to encourage and
assist the learners as they do the tasks included in the module.
4
I What I need to know
Since each transaction is listed in a way to ensure the debits equaled credits, the quality
should be maintained in the general ledger and the trial balance. If the sum of debits does not
equal the sum of credits, an error has occurred and must be located.
Businesses prepare a trial balance regularly, usually at the end of the reporting period to
ensure that the entries in the books of accounts are mathematically correct.
It is also important to note that even when the trial balance is considered balanced, it
does not mean there are no accounting errors. For example, the accountant may have failed to
record an account or classified a transaction incorrectly. These are accounting errors that would
not show up in the trial balance.
Learning Task 1: Direction: Read each question and choose the best answer.
What’s New
Learning Task 2. Locate the meaning of the following words. Refer to a dictionary or
in the website.
1. Assets __________________________________________________________
2. Liabilities _______________________________________________________
3. Owner’s Equity __________________________________________________
4. Trial balance ____________________________________________________
5. Debit ___________________________________________________________
6. Credit ___________________________________________________________
7. Transaction _____________________________________________________
8. Chart of accounts ________________________________________________
9. Total Method ____________________________________________________
10. Balance Method ________________________________________________
58
D What I know
Learning Task 3. Place the following account title in its right column.
What’s In
To prepare a trial balance, you will need the closing balances of the general ledger accounts. The trial
balance is prepared after posting all financial transactions to the journals and summarizing them on the
ledger statements. The trial balance is made to ensure that the debits equal the credits in the chart of
accounts.
1. Before you start off with the trial balance, you need to make sure that every ledger account
is balanced. The difference between the sum of all the debit entries and the sum of all the
credit entries provides the balance.
59
Account summaries in the ledger are usually presented in the form of T- Accounts. Below is
the T-Accounts for the eight accounts of MPM Co.
Figure 1
60
3. For every ledger account, transfer to the trial balance worksheet the account number and
account name along with the account balance
Figure 3
61
Rules for the preparation of the trial balance
While preparation of trial balances we must take care of the following
rules/points
A. The balances of the following accounts are always found on the debit
column of the trial balance
Assets
Expense Accounts
Drawings Account
Cash Balance
Bank Balance
Any losses
B. And the following balances are placed on the credit column of the trial
balance
Liabilities
Income Accounts
Capital Account
Profits
62
4. Add up the amounts of the debit column and the credit column. Ideally, the totals should be
the same in an error-free trial balance. When the totals are same, you may close the trial
balance
(Figure 4)
Note:
o The purpose of preparing a trial balance is to determine whether the total debits and total
credits I the ledger are equal.
o If total debits and total credits are not equal, an error surely exists.
o However, if total debits and total credits are equal, it does not necessarily mean that there
are no errors.
63
5. If there is a difference, accountants have to locate and rectify the errors.
64
What is It
65
Given the following adjustments below. Prepare the adjusted Trial Balance.
Let’s use the representation of letters (a,b,c) marked on date to record the adjustments in the
adjustment columns.
Note: Again after posting the adjustments do not forget to get the total of the debit and credit column
of the adjustments
66
Posting the Adjusted Trial Balance
After posting the adjustments you are now ready to calculate the adjusted total trial
balance for each account.
Each account has only the debit and credit balance. Remember this:
A. If there are no adjustments just copy the amount on the correct column
B. If you have two (2) debits you add the amount in the unadjusted and adjustment
columns.
Debit + Debit
C. If you have two (2) credits add the amount in the unadjusted and adjustment
Columns. +
Credit Credit
D. If you have a debit and credit, or a credit or debit on the
unadjusted and adjustment column Debit
- Credit
you will subtract.
- Debit
Credit
67
E What’s More
Learning Task 4: MPM Co. have following ledger balances on December 31, 2018
Account Titles
HEADINGS
68
A What I have Learned
Learning task 5: JML and MPM holdings opened the business on January 1, 2018. The
following were the transactions during the first week of operation.
January Transactions
Requirement:
69
70
Learning Task 4:
MPM Co
Unadjusted trial balance
Dec. 31, 2018
Account Title Debit Credit
Cash 11,000.00
Supplies 11,000.00
Accounts Receivables 13,000.00
Equipment 92,000.00
Accumulated Amortization - equipment 13,000.00
Notes payable 30,000.00
Salaries and wages payable 18,000.00
Owner’s equity 35,000.00
Owner’s drawings 13,000.00
Service Revenue 93,000.00
Rent Expense 6,000.00
Salaries and Wages expense 43,000.00
TOTAL 189,000.00 189,000.00
Learning task 3:
Learning Task 1
Assets Liabilities Equity Revenue Expenses 1. A
Cash Accounts Additional Interest Utilities 2. C
payable paid-in income expense
capital 3. D
Investments Wages Retained Sales Discount 4. C
payable earnings allowed 5. C
Prepaid Interest Service
Investments payable revenues
Vehicle Learning Task 2:
Receivables (Answers may vary)
Answer Key
71
Learning Task 5B
Cash Furniture and Fixture Supplies
500,000 200,000 200,000 30,000
20,000 30,000
10,000
520,000 240,000
280,000 200,000 30,000
Capital Service Income Salaries Expense
300,000 200,000 10,000
300,000 200,000 10,000
Learning Task 5A
Date Account title and Explanation Debit Credit
January 1 Cash 500,000
Capital 500,000
Initial Investment of the owner
2 Furniture and fixtures 200,000
Cash 200,000
Payment for cash
4 Supplies 30,000
Cash 30,000
Payment for supplies
5 Cash 20,000
Service Income 20,000
7 Salaries Expense 10,000
Cash 10,000
Payment of cash
520,000.00 520,000.00 TOTAL
January 31,2018
Trial Balance
Learning Task 5C
Reference
CHED (2016) Teaching Guide for Senior High School, FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND
MANAGEMENT 1
https://corporatefinanceinstitute.com/resources/knowledge/accounting/trial-balance/
https://www.principlesofaccounting.com/chapter-2/the-trial-balance/
https://www.accountingtools.com/articles/2017/5/16/the-trial-balance-example-format
72
SELF LEARNING MODULE
FUNDAMENTALS OF ABM1
SECOND QUARTER
MODULE 5:
Adjusting Entries of Merchandising
Business
73
Introductory Message
For the facilitator:
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:
As a facilitator you are expected to orient the learners on how to use this module. You also need
to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
The hand is one of the most symbolized parts of the human body. It is often used to depict skill,
action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand
in this learning resource signifies that you as a learner is capable and empowered to successfully
achieve the relevant competencies and skills at your own pace and time. Your academic success
lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
74
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.
7. We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it!
75
WEEK
PRE-TEST
3. It contains all the account balances of Debit and Credit at the end of an accounting
period.
LIART CELANAB – ___________________________
5. They involve changing account balances at the end of the period from what is
current balance of the account to what is the correct balance for proper financial
reporting.
TINGSUJDA SIERTNE – ___________________________
76
D
The Need for Adjustments
Accountants make adjusting entries to reflect in the accounts information on
economic activities that have occurred but have not yet been recorded. Adjusting
entries assign revenues to the period in which they are earned, and expenses to the period
in which they are incurred.
Adjusting entries involve changing accounts balances at the end of the period
from what is the current balance of the account to what is correct balance for proper
financial reporting.
Merchandise Inventory at the end of the Period
At the end of an accounting period, entries are made to reflect in the inventory
account the ending balance.
The objectives of these entries are:
a. To remove the beginning balance from the merchandise inventory
account and to transfer it to income summary;
b. To enter the ending balance in the merchandise inventory account
and to establish it in the income summary.
For the purpose of simplicity we will use the T-account (skeletal presentation
of the ledger containing the DEBIT side on the left and the CREDIT side on the
right).
The attainment of the objectives is illustrated using the figures from Calamba
Traders (a hypothetical company)
Merchandise Inventory
Jan. 1 Beginning bal. 528,000 Dec.31 Effect a (beg. Bal.)
528,000
Dec. 31 Effect b (Ending Bal.)
483,000
77
Income Summary
Dec. 31 Effect a 528,000 Dec. 31 Effect b 483,000
For purposes of simplicity, we will not use the complete parts of the General
Ledger.
The Adjusting Entry Method
Using the adjusting entry method, the two entries indicated by effects a and b
which are prepared at the time the other adjusting entries are made follow:
Dec. 31 Income Summary P528,000
Merchandise Inv., Beginning P528,000
To remove beginning balance of Merchandise
Inventory and transfer it to Income Summary
The Closing Entry Method makes the Debit and the Credit to Merchandise
Inventory by including them among the Closing Entries as follows:
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.
The beginning and ending Merchandise Inventories for GBS Company for the year
ended Dec. 31, 2012 are as follows:
Activity 2: Compute the Cost of Goods Sold for the Current Year. (Critical
Thinking, Communication, Character-building)
Glen Company has the following data pertaining to the current year:
Purchases P4,500,000
Beginning Inventory P1,700,000
Ending Inventory P2,100,000
Freight in P500,000
79
Freight out (selling expenses) P750,000
How much is the Cost of Goods Sold for the current year?
a. 3,850,000
b. 4,600,000
c. 4,850,000
d. 5,400,000
E
Learning Task 1: Adjusting Entry for Merchandise Inventory
Listed below is a partial Trial Balance of the Tindahan Retailers at December 31,
2012:
1. In the Perpetual Inventory System, the Inventory amount in the Trial Balance is
the year-end balance since the inventory account is perpetually updated.
2. No Merchandise Inventory adjusting in the Perpetual Inventory system at the end
of the period.
3. No Closing Entry in the Perpetual Inventory system at the end of the period.
4. The Cost of Sales account is a ledger account in the Perpetual System.
5. An Adjusting Entry is necessary when the year-end Inventory account balance
does NOT tally with the physical inventory amount.
80
A
Learning Task 3:
Multiple Choice: Read and understand the following statements Write the letters of the
CORRECT answer on the separate sheet of paper. (Critical Thinking,
Communication, Character-building)
81
Learning Task 1:
1. Adjusting Entry for Merchandise Inventory
Dec. 31 Income Summary P80,000
82
Merchandise Inventory, Beginning P80,000
To remove the beginning balance of merchandise Inventory
and transfer it to Income Summary.
Dec. 31 Merchandise Inventory, End P74,000
Income Summary P74,000
To establish ending balance of Merchandise
Inventory and deduct it from Goods Available
For Sale in Income Summary.
2. Partial Income Statement
Sales P190,000
Less: Sales Returns and Allowances ( 20,000)
---------------
Net Sales 170,000
Less: Cost of Sales
Beginning Inventory P80,000
Add: Purchases 60,000
Purchases Discounts (3,000)
Transportation In 1,000
----------
Goods Available for Sale 138,000
Less: Ending Inventory (74,000)
-------------
64,000
--------------
Pre-Test
1. Periodic Inventory System
2. Ending Inventory
3. Trial Balance
4. Perpetual Inventory System
5. Adjusting Entries
Learning Task 2: Activity 1
6. True Dec. 31 Income Summary P300,000
7. True Merchandise Inventory, Beginning P300,000
8. True To remove beginning balance of Merchandise
9. True Inventory and transfer it to Income Summary
10. True
Dec. 31 Merchandise Inventory, End P230,000
Income Summary P230,000
To establish ending balance of Merchandise
Inventory and deduct it from Goods Available
Learning Task 3: For Sale in Income Summary.
1. D Activity 2
2. C Beginning Inventory, P1,700,000
3. C Purchases 4,500,000
4. A Freight In 500,000
5. D -------------------
Goods Available for Sale 6,700,000
Less: Ending Inventory 2,100,000
--------------------
Cost of Goods Sold P4,600,000
==========
Answer Key
References
Textbooks
Ballada, Susan & Ballada, Win (2012). Accounting Fundamentals, 3rd Edition,
Philippines: DomDane Publishers & Made Easy Books.
Websites
Accounting coach.com
Investopedia.com
83
SELF LEARNING MODULE
FUNDAMENTALS OF ABM1
SECOND QUARTER
MODULE 6:
Accounting Cycle of Merchandising
Business
84
Introductory Message
For the facilitator:
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:
As a facilitator you are expected to orient the learners on how to use this module. You also need
to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
The hand is one of the most symbolized parts of the human body. It is often used to depict skill,
action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand
in this learning resource signifies that you as a learner is capable and empowered to successfully
achieve the relevant competencies and skills at your own pace and time. Your academic success
lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
85
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your
answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you
are not alone.
7. We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
86
WEEK
6
Accounting Cycle of Merchandising
Business
I
This module focus on merchandising business. This is designed for you learners so to
be able to:
D
Completing the accounting cycle of a Merchandising Business
The income statement is sometimes referred to as the profit and loss statement
(P&L), statement of operations, or statement of income. The income statement is important
because it shows the profitability of a company during the time interval specified in its
heading. The period of time that the statement covers is chosen by the business and will
vary.
A balance sheet, also called as the statement of financial position, shows the
financial position or condition or an entity by listing assets, liabilities, and owner’s equity
as of a specific date. It summarizes a company's assets, liabilities and shareholders' equity
at a specific point in time. These three balance sheet segments give investors an idea as to
what the company owns and owes, as well as the amount invested by shareholders.
87
Recording Adjusting and Closing Entries
Adjusting Entries
A business using the perpetual inventory system requires one additional adjustment
to make the recorder inventory match inventory on hand.
Inventory on hand is measured by a physical account - a control feature of the
perpetual inventory system.
These are shown on the worksheet and are journalized.
Then, are posted to the proper accounts.
Closing Entries
All temporary accounts are closed to the owner’s equity account (revenues, expenses,
drawings).
All debit balance accounts must be credited for the total, and the reverse applies for
credit balance accounts.
New accounts w/ merchandising businesses: sales returns and allowances, COGS,
and Freight out.
Sales is normally the only credit balance account.
When closing the general ledger, write Closing Entry for each posting in the
Description column of the general ledger account.
88
89
90
91
Preparing a post-closing trial balance
This is prepared after closing entries are made. Its purpose is to test the equality
between debits and credits after closing entries are prepared and posted. The post-
closing trial balance contains real accounts only since all nominal accounts have already
been closed at this stage.
Reversing entries are made on the first day of an accounting period in order to remove
certain adjusting entries made in the previous accounting period. Reversing entries are used
in order to avoid the double counting of revenues or expenses and to allow for the efficient
processing of documents. Reversing entries are most often used with accrual-type adjusting
entries.
92
E
REQUIRED: Based on the account balances listed above, prepare the following foe
Hello Trading:
1. A Statement of Changes in Equity for the year ended December 31, 2015;
and
93
A
Learning Task 2:
Multiple Choice: Read and understand the following statements Write the letters of the CORRECT
answer on the separate sheet of paper.
94
9. What is the equation in obtaining Gross Profit?
A. Net Sales – Net Expenses
B. Net Sales – Cost of Goods Sold
C. Gross profit – Operating Expenses
D. Net Income from Operations + other Income – Total Expenses
10. Its purpose is to test the equality between debits and credits after closing entries are prepared
and posted.
A. Adjusting Entries C. Reversing entries
B. Post-closing trial balance D. None of these are correct
11. Which among these is an expense account?
A. Accounts Payable C. Inventory
B. Cost of Goods Sold D. Trademark
12. Which among those is a revenue?
A. Cash C. Retained earnings
B. Interest receivable D. Sales
13. It is the result when total expense is larger that total revenues.
A. Gross Profit C. Net loss
B. Net income D. Revenue
For numbers 14 – 15. Refers to the table below.
14. Assuming that the income statement is already made, how much should be the
gross profit?
A. ₱ 56, 500 C. ₱ 98,000
B. ₱ 91, 500 D. None of these are correct
15. How much is the income before tax?
A. ₱ 63,000 C. ₱ 131,000
B. ₱ 121,000 D. ₱ 146,000
95
96
Learning 1:
1. Statement of Changes in Equity
HELLO TRADING
Statement of Changes in Equity
For the year ended December 31, 2015
Account Title Note Dr Cr
Kitty, Capital, January 1 Php 66,700
Kitty, Drawing Php 12,000
Net loss 22,600 -(34,600)
Php 32,100
2. Statement of Financial Position
HELLO TRADING
Statement of Financial Position
For the year ended December 31, 2015
Account Title Note Dr Cr
ASSETS
Current Assets
Cash Php 21,000
Trade and other receivables 5 35,700
Learning 2 Merchandise Inventory 47,000
Prepaid expenses 6 63,600
16. C
Total current assets Php 167,300
17. C Non-current Assets
18. A Property, plant, and equipment 7 32,000
19. A
TOTAL ASSETS Php 199,300
20. C
21. B LIABILITIES AND EQUITY
22. A
Current Liabilities
23. A Trade and other payable 8 Php 67,200
24. B
Non-current Assets
25. B
Notes Payable (due June 30, 2018) 100,000
26. B TOTAL LIABILITIES Php 167,200
27. D
28. C EQUITY
Kitty, Capital 32,100
29. C
30. A TOTAL LIABILITIES and EQUITY Php 199,300
Answer Key
References
Textbook:
Tugas, Florenz C., et.al, Fundamentals of Accountancy, Business and Management 1,
Department of Education
Website:
www.lcsnc.org
Quexhub Application of Fundamentals of ABM 1
97
SELF LEARNING MODULE
FUNDAMENTALS OF ABM1
SECOND QUARTER
MODULE 7:
Statements of Cost of Goods Solds and
Gross Profit
98
Introductory Message
For the facilitator:
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:
As a facilitator you are expected to orient the learners on how to use this module. You also need
to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
The hand is one of the most symbolized parts of the human body. It is often used to depict skill,
action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand
in this learning resource signifies that you as a learner is capable and empowered to successfully
achieve the relevant competencies and skills at your own pace and time. Your academic success
lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
99
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your
answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you
are not alone.
7. We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
100
WEEK STATEMENTS OF COST OF GOODS
7 SOLD AND GROSS PROFITS
I
This module was written for you to accomplish at home. It was carefully
designed so that you can work at your own pace and allow self-discovery of the concept
through activities that you will perform. Activities were also selected to allow independent
learning which also aims to develop students’ reading comprehension skills through
understanding written texts. This is designed for you learners so to be able to: 1. Prepares
statements of cost of goods sold and gross profits.
PRE-TEST:
Directions: Write T if the statement is true and F if it is false.
__________ 1. Cost of goods sold is the amount of goods purchased excluding the expenses
incurred on manufacturing the goods.
__________ 2. The gross profit is a profitability measure that evaluates how efficient a
company is in managing its labor and supplies in the production process.
__________ 3. Cost of goods sold is computed only to know the gross profit from the trading
activities of a business unit.
__________ 4. The COGS is an important metric on the financial statements as it is
subtracted from a company’s revenues to determine its gross profit.
__________ 5. Gross profit is equal to the net sales less the cost of goods sold.
__________ 6. Gross profit will appear on a company's income statement and can be
calculated by subtracting the cost of goods sold (COGS) from revenue
(sales).
__________ 7. If you are selling a physical product, inventory is what you sell.
__________ 8. Wages you pay to employees who spend all their time working directly on
the products your company makes is an example of direct costs.
__________ 9. Gross profit is the money you have available to run your business after
paying for the goods or services that let you make the sales in the first
place.
__________ 10. Beginning and ending inventory are not important in preparing the cost
of good sold statement.
101
D
COST OF GOODS SOLD AND GROSS PROFIT
A business enterprise either purchases goods or manufactures goods to sell in the market. The
cost of goods sold is the price of all inventory sold which includes both fixed and variable costs. It is
computed to know the profit earned (GROSS PROFIT) or loss incurred (GROSS LOSS) from the
training activities of a business unit for a particular period.
Cost of Goods Sold are also known as “cost of good sales” or its acronym “COGS.” COGS refers
to the cost of goods that are either manufactured or purchased and then sold. COGS count as a
business expense and affect how much profit a company makes on its products.
Cost of goods sold is found on a business’s income statement, one of the top financial reports
in accounting. An income statement reports income for a certain accounting period, such as a year,
quarter, or month.
Cost of goods sold = the amount of goods purchased plus expenses incurred in bringing the goods to
the place of sale or expenses incurred on manufacturing the goods (called direct expenses).
In case there is a stock goods to be sold in the beginning of the year or at the end of the year
the cost of good sold is calculated as follows:
Cost of goods sold = opening stock + net purchases + all direct expenses -closing stock
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I. COST OF GOODS SOLD AND INVENTORY
The calculation of the cost of goods sold is focused on
the value of your business's inventory. If you are selling a
physical product, inventory is what you sell. Your business
inventory might be items you have purchased from a
wholesaler or that you have made yourself and are reselling.
You might also keep an inventory of parts or materials for products that you make. Inventory
is an important business asset, with a specific value.
The process of calculating the cost of goods sold starts with inventory at the beginning of the
year and ends with inventory at the end of the year. Many businesses have a process of taking
inventory at these times to figure the value of their inventory.
Inventory that is sold appears in the income statement under the COGS account. The
beginning inventory for the year is the inventory left over from the previous year—that is, the
merchandise that was not sold in the previous year. Any additional productions or purchases made
by a manufacturing or retail company are added to the beginning inventory. At the end of the year,
the products that were not sold are subtracted from the sum of beginning inventory and additional
purchases. The final number derived from the calculation is the cost of goods sold for the year.
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movement is beneficial for income tax purposes, the business will have less profit for its
shareholders. Businesses thus try to keep their COGS low so that net profits will be higher.
NOTE:
Cost of goods sold (COGS) includes all of the costs and expenses directly related to
the production of goods.
COGS excludes indirect costs such as overhead and sales & marketing.
COGS is deducted from revenues (sales) in order to calculate gross profit and gross
margin.
Higher COGS results in lower margins.
As a rule of thumb, if you want to know if an expense falls under COGS, ask: "Would
this expense have been an expense even if no sales were generated?"
The items that make up costs of goods sold include:
Direct Costs are costs related to the production or purchase of the product.
Indirect Costs are costs related to warehousing, facilities, equipment, and
labor.
Step 2: Determine Facilities Costs
You must set a percentage of your facility costs (rent or mortgage interest, utilities,
and other costs) to each product, for the accounting period in question.
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During 2018, the company purchased Php1 000 000 of raw material and direct labor incurred
of Php 1 600 000. Manufacturing overhead costs were as follows:
*Sales revenue was Php 4 105 000 for the year. Selling and administrative expenses for the
year amounted to Php 110 000.
Required:
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STUDY QUESTIONS:
Answer the following questions briefly and concisely. Use real-life examples if needed.
What amount should the Seaworthy Scuba Gear report as cost of goods sold for the year?
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Solution:
Php Php
Beginning Inventory 30,000
Purchases 120,000
Freight-In 15,500
Raw materials 42,000
Cost of Labor 20,000
Total Goods Available for sale 227,500
Ending Inventory 20,500
Cost of Goods Sold 207,000
Study Question:
The following information pertained to SinoVac Co. for the month of February 2021.
Required:
1. Compute for the COGS of SinoVac Co. for the month of February 2021.
2. If SinoVac sales is Php 350,000 and given all the above information, do you think
you can solve for gross profit of the manufacturing company? How?
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II. GROSS PROFIT: EARNED PROFIT
Gross Profit is one of the components of the profit and loss statement of your business.
It is the difference between net sales and cost of goods sold. In other words, it is the profit
generated as an outcome of undertaking the basic operational activities of your business. Such
basic activities include: Manufacturing, Purchasing and Selling of Goods.
The definition of gross profit is total sales less cost of goods sold (COGS). “It is the
amount of revenue after you subtract the cause of goods.”
Sales is defined as the amount of goods and services you sell to customers. The cost
of goods sold balance includes all costs that are directly related to creating and selling the
product or service.
It is important to note that gross profit is different than net income. To calculate net
income, you must subtract operating expenses from gross profit.
In addition, sales do not equal revenue. Total revenue includes sales, and other
activities that generate cash inflows and profit. If a manufacturer, for example, sells a piece of
equipment for a gain, the transaction generates revenue. However, a gain on sale is different
than selling a product to a customer.
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A gain on sale is posted to the income statement as non-operating income and is
not part of the gross profit formula.
As generally defined, gross profit does not include fixed costs (that is, costs that
must be paid regardless of the level of output). Fixed costs include rent, advertising, insurance,
salaries for employees not directly involved in the production and office supplies.
However, it should be noted that a portion of the fixed cost is assigned to each unit of
production under absorption costing, which is required for external reporting under the
generally accepted accounting principles (GAAP). For example, if a factory produces 10,000
widgets in each period, and the company pays PHP 30,000 in rent for the building, a cost of
PHP 3.00 would be attributed to each widget under absorption costing.
Gross profit should not be confused with operating profit, also known as earnings
before interest and tax (EBIT), which is a company's profit before interest and taxes are
factored in. Operating profit is calculated by subtracting operating expenses from gross profit.
Sales and cost of goods sold are two of the biggest balances in the income statement. If
you can make changes to either balance, you can increase profitability. Operating expenses may
be harder to reduce since many of the costs are fixed.
Examples 1:
To understand the gross profit formula, meet Racquel, the owner of RACQUEL’S
Outdoor Manufacturing. Racquel’s business manufactures hiking boots, and her firm just
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completed its first year of operations. Below is the income statement of the business for the
end of the year 2020. Study how the gross profit is computed until the net income was
solved. Notice that gross profit is totally different from net profit.
Operating Expenses
Office salaries 104,200
Depreciation 0
Insurance 20,000
Home office lease 0
Marketing, advertising 30,000
Repair and maintenance 15,000
The sales component of the formula is straightforward (selling price multiplied by the
number of boots sold). R. Outdoor sold Php 1,891,910 of boots in 2020. The firm’s cost of sales
component is more complex, however. What expenses are included in the cost of goods sold
balance?
Gross profit is important for a company’s accounting because it deals specifically
with cost of goods sold. In other words, the data generated can reflect how efficient a
company’s management is when it comes to the purchasing of supplies, allocation of labor or
decisions regarding the plant or location where the product is being produced.
NOTE:
Also called gross income, gross profit is calculated by subtracting the cost of goods sold
from revenue.
Gross profit only includes variable costs and does not account for fixed costs.
Gross profit assesses a company's efficiency at using its labor and supplies in producing
goods or services. 111
How to Calculate Simple Gross Profit
Example 2:
Let us pretend you own a stand on the beach, and you sell snorkel sets. The only cost
associated directly with making a sale is the amount you paid to purchase the snorkel sets you
are selling to folks who come to the beach unprepared.
If you price your snorkel sets at Php 200 each and you sell 10 sets before you hit the
waves at noon, you will have made Php 2000 in sales. Php 200 per snorkel set x 10 snorkel
sets sold = Php 2000 in sales
But you must pay for the snorkel sets you sold. Chances are you paid in full before
your supplier shipped them to you, but you need to replenish your stock—otherwise, you will
not have anything to sell and your beach stand will go out of business. Let us pretend you
purchased your snorkel sets for Php50 each. The cost of the 10 snorkel sets you sold, then, is
Php500.
Php 50 cost per snorkel set x 10 snorkel sets purchased for resale = Php 500 in cost of goods
This Php1500, in turn, gets used to maintain your beach stand, advertise at the tiki hut
down the shore, etc.
Gross profit, then, is the money you have available to run your business after paying for the
goods or services that let you make the sales in the first place.
1. Make a simple calculation of gross profit based on businesses that you can
observed in your community.
Operating Expenses
Depreciation 10,500
Insurance 20,000
Marketing, advertising 30,000
Repair and maintenance 15,000
Total Operating Expenses _____________
Net Income 112 _____________
E
Learning Task 1: Check Your Understanding
3. What is the difference between NET profit and GROSS profit? Explain comprehensively.
________________________________________________________________________
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5. Why do you think it is important for a company to have a knowledge about the status of
their gross profit?
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A
POST-TEST:
__________ 1. Cost of goods sold is the amount of goods purchased excluding the expenses
incurred on manufacturing the goods.
__________ 2. The gross profit is a profitability measure that evaluates how efficient a
company is in managing its labor and supplies in the production process.
__________ 3. Cost of goods sold is computed only to know the gross profit from the trading
activities of a business unit.
__________ 4. The COGS is an important metric on the financial statements as it is
subtracted from a company’s revenues to determine its gross profit.
__________ 5. Gross profit is equal to the net sales less the cost of goods sold.
__________ 6. Gross profit will appear on a company's income statement and can be
calculated by subtracting the cost of goods sold (COGS) from revenue
(sales).
__________ 7. If you are selling a physical product, inventory is what you sell.
__________ 8. Wages you pay to employees who spend all their time working directly on
the products your company makes is an example of direct costs.
__________ 9. Gross profit is the money you have available to run your business after
paying for the goods or services that let you make the sales in the first
place.
__________ 10. Beginning and ending inventory are not important in preparing the cost
of good sold statement.
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Additional Activities
Student:
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116
FABM1_WEEK 7_MODULE_7
ANSWER KEY
PRETEST ACTIVITY 1: SinoVac CO.
1. F COGS Statement
2. T Php Php
3. F Sales 350,000
4. T Cost of Sales
5. T Beginning Inventory 24,000
6. T F-In Materials 150,000
7. T Direct Labor 102, 000
8. T Container Expenses 50,000
9. T Total Goods Available for Sale 224,000
10. F Ending Inventory 48,000
Cost of Goods Sold 176,000
Gross Profit 174,000
ACTIVITY 2.2
POST TEST
Chairs and Tables Inc.
1. F Income Statement 2020
2. T Php Php
3. F Sales 500,000
4. T Cost of Sales
5. T Materials 88,000
6. T Labor Cost 22,000
7. T Total Cost of Goods Sold 110,000
8. T
9. T Gross Profit 390,000
10. F
Operating Expenses
Depreciation 10,500
Insurance 20,000
Marketing, advertising 30,000
Repair and maintenance 15,000
Total Operating Expenses 75,500
Net Income 314,500
Answer Key
References
https://www.fundera.com/blog/how-to-find-gross-profit
https://www.thebalancesmb.com/how-to-calculate-cost-of-goods-sold-397501
https://www.youtube.com/watch?v=-2jJYh-Qi_w
https://www.freshbooks.com/hub/accounting/cost-of-goods-sold-cogs
https://quickbooks.intuit.com/r/bookkeeping/gross-profit/
https://www.youtube.com/watch?v=ujH3gfMU27w
https://www.investopedia.com/terms/g/grossprofit.asp#:~:text=Gross%20profit%20is%20the%20profit,
)%20from%20revenue%20(sales)
117
SELF LEARNING MODULE
FUNDAMENTALS OF ABM1
SECOND QUARTER
MODULE 8:
Statements of Cost of Goods Solds and
Gross Profit
118
Introductory Message
For the facilitator:
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:
As a facilitator you are expected to orient the learners on how to use this module. You also need
to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
The hand is one of the most symbolized parts of the human body. It is often used to depict skill,
action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand
in this learning resource signifies that you as a learner is capable and empowered to successfully
achieve the relevant competencies and skills at your own pace and time. Your academic success
lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.
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The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Read the instructions carefully before doing each task.
3. Observe honesty and integrity in doing the tasks and checking your
answers.
4. Finish the task at hand before proceeding to the next.
5. Return this module to your teacher/facilitator once you are through with it.
6. If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you
are not alone.
7. We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
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WEEK
STATEMENTS OF COST OF GOODS
8 SOLD AND GROSS PROFITS
I
This module was written for you to accomplish at home. It was carefully designed
so that you can work at your own pace and allow self-discovery of the concept through
activities that you will perform. Activities were also selected to allow independent learning
which also aims to develop students’ reading comprehension skills through understanding
written texts.
This is designed for you learners so to be able to:
Prepares statements of cost of goods sold and gross profits.
PRE -ACTIVITY
Directions: Complete the sentence by filling up the blanks. Find the correct answer in
the puzzle below.
c x m t e k r a m t e g r a i
f o i o j x n n r x m p a g c
c v s c n z i e u j u j o u n
j l b t n e i d r v d b b h z
k b r w o l y e y w d h a l y
r v y j p f p a t e n t i u r
a l i p p c g e u h c j e u o
m g u a s u p o u c t o s q t
e s v x a v l c o p v h b i n
s i p u r o e s f d o l v v e
a c r c w k n n e i s a p o v
l t k m d v q j w v h s v e n
e l i w i x k p p w k a o n i
s r x y g t w s u o h z s l h
j p u r c h a s e s s i p w d
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1. _______ refers to the cost of goods that are either manufactured or purchased and
then sold.
2. The process of calculating the cost of goods sold starts with _______ at the beginning of
the year ends with inventory at the end of the year.
3. Any additional or _______ made by a manufacturing or retail company are added to the
beginning inventory.
4. ________ is the total sales less cost of goods sold (COGS).It is the amount of revenue
after you subtract the cost of goods sold.
5. ______ is the amount of goods and services you sell to the customers.
D
Determining Cost of Goods Sold under the Perpetual Inventory System
The Cost of Goods Sold under the perpetual inventory system is determined by getting the
running balance in the general ledger of the account. Recall the previous discussion on posting
the journal entries to the general ledger. At any point in time, you can determine the cumulative
cost of goods sold under the perpetual inventory system because in this system a separate
general ledger for “Cost of Goods Sold” is maintained
Geo San is in the business of buying and selling canned sardines. On January 2016, Geo had
the following transactions:
1/1/16 Merchandise inventory on hand 1,000 cans @ PHP10/can PhP 10,000
1/10/16 Purchased 5,000 cans @ PHP11 /can 55,000
1/20/16 Purchased 4,000 cans @ PHP12/can 48,000
Total PhP 113,000
During the month of January the total sales in units is 7,000. Therefore, the ending
inventory in units is 3,000 cans of sardines (1,000+5,000+4,000-7,000). The problem now is
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the unit cost that will be used to determine the value of the ending inventory. This is where the
cost flow assumption is needed.
1,000 @ PHP10
5,000 @ PHP11
1,000 @ PHP12
———————-
7,000 units
Therefore, the ending inventory will come from the January 20 purchases:
3,000 @ PHP12 = PHP36, 000
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MOVING AVERAGE METHOD.
Under the average method of inventory valuation, the unit cost from
a first acquisition is changed by the cost of a second acquisition is
changed by the cost of a second acquisition, and still changed by
cost of a third and subsequent.
If the inventory sold came from Lot B, the cost of sales is P450 (P45 x 10) and the
journal entries from the sale would have been:
To find the cost of goods sold during an accounting period, use the COGS formula:
1. COGS = Beginning Inventory + Purchases During the Period – Ending Inventory.
2. Gross Income = Gross Revenue – COGS.
3. Net Income = Revenue – COGS – Expenses.
Placebo Clip-On Tie Company had one tie in inventory at the beginning of the year,
and it cost P5. On February 10, the company bought another tie for inventory, and it
cost P8. On March 10, the company bought another tie for P10; on April 3, it purchased
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another for P12; and on May 12, it bought another for P15. In June, Placebo sold three
ties.
If the company uses the average cost method of recording cost of goods sold
expense, how much is cost of goods sold?
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E
Learning Task 1: Check Your Understanding
Listed below are some of the accounts relating to the income of Leather Plus (owned
by Abner Bravo) for the three month period ended March 31, 2016:
Required:
1. Prepare a schedule of cost of goods sold for the three-month period ended March
31, 2016.
2. Prepare a statement of income for the period ended March 31, 2016.
3. Prepare closing entries.
125
A
Learning Task 2:
The following data was taken from ledger account balances and supplementary data for the XYZ
Company.
Required:
Complete Income Statement in proper format. Compute of net sales, cost of goods sold, and
gross profit for the year ended December 31, 2016.
XYZ COMPANY
Income Statement
For the Year Ended December 31, 2016
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_____________________________________________________________________________
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128
Learning Task 1.2:
CLOSING ENTRIES
Leather Plus
Sales 500,000
Income Statement
Sales Returns & Allow 15,000
For the three-month period ended March 31, 2016
Sales Discounts 7,800
Income Summary 477,200
Gross Sales 500,000
Less: Sales Returns & Allow (15,000)
Income Summary 334,600
Sales Discounts (7,800)
Purchase Returns & Allow 4,900
——————
Purchase Discount 1,800
Net Sales 477,200
Purchases 302,000
Less: Cost of Goods Sold 305,400
Freight-In 5,000
——————
Supplies Expense 1,200
Gross Profit 171,800
Salaries Expense 18,000
Rental Expense 5,000
Less: Expenses
Delivery Expense 2,100
Utilities Expense 8,000
Supplies Expense 1,200
Salaries Expense 18,000
Income Summary 170,100 Rental Expense 5,000
Merchandise Inventory, Beg 170,100 Delivery Expense 2,100
Utilities Expense 8,000
Merchandise Inventory, End 165,000 ——————
Income Summary 165,000 Total Expenses 34,300
——————
Income Summary 137,500
Net Income 137,500
Bravo,Capital 137,000 —————
Learning Task 1.1: ACTIVITY 1. LET’S TRY WHAT
YOU HAVE LEARNED:
Leather Plus
Answer: P30
Schedule of Costs of Goods Sold
The average cost method
For the three-month period ended March 31, 2016
calculates the cost of all units
available for sale during the
Merchandise Inventory, Beg 170,100
period.
Add: Net Purchases
Purchases 302,000
Less: Purchase Returns & Allow (4,900) Then, a cost per unit is calculated
Purchase Discounts (1,800) 295,300 using the cost of all units available for
—————- sale divided by the total number of
Add: Freight-In 5,000 units available for sale.
——————-
Cost of Goods Available for Sale 470,400 Then, that cost per unit is multiplied
Less; Merchandise Inventory, End (165,000) by the number of units sold to arrive
—————— at cost of goods sold expense — 10
Cost of Goods Sold 305,400 ×3 = 30.
Learning Task 2 Pre- activity
(1) Net Sales P395,000 1. Cost of Goods Sold
(2) Net Purchases P206,000 Think of this 2. Inventory
(3) Cost of Goods Purchased P216,000 Cost of sales P497.00 3. Purchases
(4) Cost of Goods Sold P213,000 4. Gross Profit
(5) Gross Profit from Sales P182,000
Inventory P497.00
5. Sales
Answer Key
References
https://www.fundera.com/blog/how-to-find-gross-profit
https://www.thebalancesmb.com/how-to-calculate-cost-of-goods-sold-397501
https://www.youtube.com/watch?v=-2jJYh-Qi_w
https://www.freshbooks.com/hub/accounting/cost-of-goods-sold-cogs
https://quickbooks.intuit.com/r/bookkeeping/gross-profit/
https://www.youtube.com/watch?v=ujH3gfMU27w
https://www.investopedia.com/terms/g/grossprofit.asp#:~:text=Gross%20profit%20is%20the%20profit,
)%20from%20revenue%20(sales)
https://www.dummies.com/business/accounting/cost-of-goods-sold-practice-questions/
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