Abm General and Special Journal
Abm General and Special Journal
Record transactions of a
merchandising business in the
general and special journals.
Commonly used Special Journals:
1. Cash Receipt Journal - used to
record all cash that had been
received.
2. Cash Disbursement Journal -
used to record all transactions
involving cash payments.
Commonly used Special Journals:
3. Sales Journal (Sales on Account
Journal) - used to record all sales
on credit (on account).
4. Purchase Journal (Purchase on Account
Journal) - used to record all purchases
of inventory on credit (on account)
Inventory System
1. Perpetual System - detailed
records of the cost of each item are
maintained, and the cost of each
item sold is determined from records
when the sale occurs. For example, a
car dealership has separate inventory
Inventory System
• Record purchase of inventory.
• Record revenue and record cost
of goods sold when the item is
sold.
• At the end of the period, no entry is
needed except to adjust inventory for
losses, etc.
Inventory System
2. Periodic System - Cost of goods sold is
determined only at the end of an accounting
period. This system involved:
• Record purchase of Inventory.
• Record revenue only when the item is
sold.
• At the end of the period, you must
compute cost of goods sold (COGS):
Inventory System
1. Determine the cost of goods on hand at the
beginning of the accounting period (Beginning
Inventory =BI),
2. Add it to the cost of goods purchased (COGP),
3. Subtract the cost of goods on hand at the end of
the accounting period.
4. (Ending Inventory = EI) illustrated as follows:
BI + COGP = Cost of goods available for sale - EI = COGS
Inventory System
Additional Considerations:
• Perpetual systems have traditionally been
used by companies that sell merchandise with
high unit values such as automobiles, furniture
and major home appliances. With the use of
the computers and scanners, many companies
now use the perpetual inventory system.
Inventory System
Additional Considerations:
• The perpetual inventory system is named
because the accounting records
continuously - perpetually - show the
quantity and cost of the inventory that
should be on hand at any time. The
periodic system only periodically updates
the cost of inventory on hand.
Inventory System
Additional Considerations:
• A perpetual inventory system provides
better control over inventories than a
periodic inventory, since the records always
show the quantity that should be on hand.
Then, any shortages from the actual
quantity and what the records show can be
investigated immediately.
Periodic Inventory System
Recording purchases and related transactions under the
Periodic Inventory System
Purchases of Merchandise: Periodic System
1. When merchandise is purchased for resale to
customers, the account, Purchases, is debited for
the cost of goods purchased.
2. Like sales, purchases may be made for cash or
on account (credit)
Periodic Inventory System
3. The purchases is normally recorded by the
purchaser when the goods are received from
the seller.
• Each credit purchases should be supported
by a purchase invoice.
• A purchase invoice received by the buyer is
actually a sales invoice or a charge invoice
prepared by the supplier or vendor.
Periodic Inventory System
General Journal
Date Account Title and Explanation Ref Debit Credit
1//3/16 Accounts Payable 10,000
Purchase Returns and 10,000
Allowances
To record return of 1 unit of
computers worth Php10,000
from Delta, Inc. as per DM 01
Accounting for Freight Costs
The sales agreement should indicate
whether the sell 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.
Accounting for Freight Costs
FOB Shipping Point:
• Goods place free on board (FOB) the carrier by seller.
• Buyer pays freight costs.
* Freight -In is debited if buyer pays freight.
* Cash is credited if the goods come on cash on delivery
(COD), for example, and was paid immediately. Accounts
Payable would be credited on account.
* Ownership over the goods is transferred to the buyer once
it is out of the premises of the seller.
FOB Destination
• Goods placed free on board (FOB) at buyer's
business.
• Seller pays freight costs.
• Delivery Expense is debited if seller pays freight on
outcoming merchandise to a buyer. This is an
operating expense to the seller.
• Ownership over the goods is transferred to the
buyer once the goods are delivered and received
by the buyer.
To Illustrate:
Assume the supplier of Magaling is based in
Manila. In order to bring to the 20 computer
units to Bicol, it will cost Php3,000 to deliver the
goods.
General Journal
Date Account Title and Ref Debit Credit
Explanation
1/4/16
Freight - In 3,000
Cash 3,000
Sales 36,000
Cash 500
Cash 50,000
Sales 90,000
To record collection of
accounts receivable from Jun
Cruz net of 2% sales discount
Determining Cost of Goods Sold under Periodic Inventory System
Cost of goods sold:
Merchandise Inventory, Beginning 100,000
Purchases 250,000
Less: Purchase returns and allowances 5,000
Purchase discounts 2,000
Add: Freight in 7,000
Net Purchases 243,000
Cost of goods purchased 6,000
Cost of Goods available for sale 249,000
Merchandise Inventory, Ending 349,000
Cost of goods sold 230,250
In a periodic inventory system, separate ledger
accounts are maintained for various items
composing the cost of goos sold (Purchases,
Purchase Returns and 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.
Practice Set 1
ABM Merchandising sells facsimile, copiers and other
types of offfice equipment. Transactions during the
month of September 2019 are as follows:
Sept 1 Purchased five units pf copiers on account from
Machine Corp at a cost of PHP8,000 per unit.
Payment is due 30 days after.
Borrowed from Nation Bank, PHP50,000 at 10% interest
per annum due in three months. Canto issued a
promissory note for this borrowing.
Sept 2 Purchased 10 units facsimile machines
on cash from Tiktac Corp for a total
price of PHP20,000.
Sept 7 Sold three units of copiers to Jane Nay
on account for a total amount PHP45,
000.The terms of the sale is 2/10, n/30.
Sept 10 Paid PHP5,600 for office supplies.
Sept 14 Collected from Jane Nay the full
amount relating to September 7 sales.
Sept 15 Paid PHP10,000 salaries of office
staff
Sept 20 Sold on cash, two units of facsimile
machines to Juan for PHP5,000.
Sept 30 Purchased delivery truck worth
PHP300,000 with an estimated useful life of 10
years with no residual value. Canto paid
PHP200,000 cash and balance payble 30
days after.
Instructions:
1. Prepare journal entries to record the
above transactions, assuming ABM
use periodic inventory system.
2. Prepare necessary adjusting entries
on September 30, 2019.