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FABM1 Q4 Module 14
FABM1 Q4 Module 14
0
Fundamentals of SENIOR
Accountancy, Business HIGH
and Management 1 (FABM 1) SCHOOL
Self-Learning
of a Merchandising Business
14
666
Quarter 4
Fundamentals of Accountancy, Business and Management 1
Quarter 4 – Self-Learning Module 1: Preparing of Adjusting Entries of a
Merchandising Business
First Edition, 2020
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(FABM 1)
Self-Learning
Module
Preparing of Adjusting Entries of
14
a Merchandising Business
12
Quarter 4
Introductory Message
This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st-century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character 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 learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
For the learner:
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 material while being an active
learner.
Posttest - This measures how much you have learned from the
entire module.
EXPECTATIONS
1. recognize the need for a physical count and analyze the effects of omitting the
procedure;
PRETEST
4. Under the expense method of recording prepayment, the initial entry is a debit
to a prepaid expense account.
5. If no adjusting entries are prepared, then the accounting process would
generate corrected financial statements.
RECAP
Directions: Identify the term that best suits each statement.
_______________1. The schedule of all balances to prove the equality of the debit and
credit.
_______________2. Occurs when order of two numbers are reversed.
For numbers 3-5
Write true if the statement is correct and false if it incorrect.
_______________3. Generally, a currency sign is shown only for the first item in the
column and for the total of that column
_______________4. The first step in locating errors is to determine the amount of the
difference between the two columns of the trial balance
_______________5. In locating errors, if the error is P1, P10, P100, or P1,000, deduct
the trial balance columns and recompute the account balances.
LESSON
Each of the steps in the accounting cycle described in the prior modules for a
service company applies to a merchandiser. Adjusting entries are normally the same
for merchandising companies and service companies, including those for prepaid
expenses (including depreciation), accrued expenses, unearned revenues, and
accrued revenues. However, a merchandiser using a perpetual inventory system is
usually required to make another adjustment to update the Merchandise Inventory
account to reflect any loss of merchandise, including theft and deterioration.
Shrinkage is the term used to refer to the loss of inventory, and it is computed by
comparing a physical count of inventory with recorded amounts. A physical count
has usually performed at least once annually. To illustrate, J-Mart’s Merchandise
Inventory account at the end of the year 2020 has a balance of Php21,250, but a
physical count reveals that only Php21,000 of inventory exists. The adjusting entry
to record this Php250 shrinkage is debit Shrinkage Expense and credit Inventory.
Module 1 discussed the adjusting entries for a service provider and these are
accrued income and accrued expenses, deferred income and deferred expenses,
depreciation, and bad debts. These adjustments are also applicable for a
merchandiser but there is an additional adjusting entry to be made, which is the
merchandise inventory.
At the end of the accounting period, good internal control requires that the
business should conduct an inventory physical inventory.
There is a need to adjust the accounts at the end of the accounting period
whether a business is a service provider or a merchandiser. The following are the
adjustments prepared for a merchandising business:
3. Ensure you understand and can plan for loss. Loss can come from theft or
breakage. Every day that an item remains in inventory, its value decreases.
As the value lessens, the risks of the cost to stock the item outweighing its
value becomes very real.
4. Improves your profits overall. You can classify certain products in your
warehouse as obsolete inventory, which is a valuable method for identifying
which items to market and merchandise for quick sale. This process also
reduces the liability and breaks even, at least, for questionable products.
If you understated the ending inventory, your COGS will be overstated by
the error amount, and net income and gross profit are understated. If you overstated
beginning inventory, then COGS is overstated, and gross profit and net income are
understated.
Recall module 8 that under the periodic method of recording merchandise cost
of sales is not determined every time merchandise is handed over to a customer. After
making a physical count at the end of the accounting period, this is recorded and
deducted from total goods available for sale to arrive at cost of sales.
Under the perpetual method, this is not recorded anymore since the amount of
unsold or on hand at the end of the accounting period, say one year, immediately
appears in the ledger as the balance of the merchandise inventory.
To illustrate, assume that you are given the following information: (1)
merchandise inventory at the start of the year, P50,000; (2) total purchases during
the year, P100,000 and (3) the closing stock at the end of the year per inventory
count, P30,000. Analysis and entries will appear as follows;
The adjusting and closing entries of a merchandising business are practically the
same as those of a servicing business, except for the adjusting and closing of
merchandise inventory.
The format for recording the adjustment of unsold inventory under the periodic
inventory system is as follows:
Illustration:
Assuming that the total amount of unsold merchandise on December 31, 2019, is
P30,000, the adjusting journal entry would be:
As you observe on the above entry for inventory beginning is technically not
an adjusting entry but a closing entry.
Assumes that this has been sold.
That is why is credited.
Alternatively, the adjustment of the ending inventory and the closing of the
beginning inventory discussed above can be journalized in a compound entry, as
follows:
Listed below is a partial trial balance of the Carlito Retailers at October 31, 2020
The beginning and ending merchandise inventories for Sophia Company for the year
ended December 31, 2019, are as follows:
Merchandise Inventory, 1/1/2019 P 30,000
Merchandise Inventory, 12/31/2019 23,000
Required:
Prepare the adjusting entries to update the merchandise inventory account as
of December 31, 2019.
WRAP-UP
To summarize what you have learned in the lesson, answer the following
questions:
VALUING
POSTTEST
Epstein, Lita, MBA Bookkeeping Workbook for Dummies. Wiley Publishing, Inc.
Hernane, Milagros B.,et.al 2014. Principles of Accounting. Allen Adrian Books Inc.
Valencia, Edwin G. 4th Edition. Basic Accounting (Concepts, Principles, Procedures and
Applications) Valencia Educational Supply