Subject: FINANCIAL ACCOUNTING AND REPORTING

Title of the Module

Chapter 6: Accounting Cycle for a Merchandising Business
Learning Outcome
At the end of the chapter, the students should be able to:

• Prepare the Statement of Cost of Goods Sold and Gross Profit

• Complete the Accounting Cycle of a Merchandising Business

Illustration 2: Periodic Inventory System

The accounts of Jim Boy Trading Co. have the following balances on January 1, 2020

Jim Boy Trading Co.

Trial Balance
January 1, 2020

Accounts Debit Credit

Cash 50,000.00
Accounts receivable 120,000.00
Inventory 30,000.00
Equipment 200,000.00
Accumulated depreciation 80,000.00
Accounts payable 20,000.00
Jim Boy, Capital 300,000.00
Totals 400,000.00 400,000.00

The following were the transactions during the year:

1. Sales on cash basis amounting to P80,000.
2. Sales on account amounted to P130,000.
3. Purchases on account amounted to P70,000.
4. Freight paid on purchases amounted to P5,000.
5. Purchase returns amounted to P10,000.
6. Salaries paid amounted to P60,000.
7. Utility bills paid amounted to P20,000.
8. Collections of accounts receivable amounted to P200,000.
9. Payments of accounts payable amounted to P60,000.
10. Owner’s drawing during the year totaled P80,000.

Additional requirements:
a. The annual depreciation on the equipment is P20,000.
b. The physical count of inventory on December 31, 2020 revealed a P60,000 balance of goods on hand.

Requirements: Complete the accounting cycle

Steps 1 & 2 Identifying and Analyzing & Journalizing

1 Cash 80,000.00
Sales 80,000.00
to record cash sales
2 Accounts receivable 130,000.00
Sales 130,000.00
to record sales on account
3 Purchases 70,000.00
Accounts payable 70,000.00
to record purchases on account
4 Freight-in 5,000.00
Cash 5,000.00
to record freight cost incurred on purchase
5 Accounts payable 10,000.00
Purchase returns 10,000.00
to record purchase returns
6 Salaries Expense 60,000.00
Cash 60,000.00
to record payment of salaries
7 Utilities Expense 20,000.00
Cash 20,000.00
to record payment of utility bills
8 Cash 200,000.00
Accounts receivable 200,000.00
to record collection of accounts receivable
9 Accounts payable 60,000.00
Cash 60,000.00
to record payment of accounts payable
10 Jim Boy, Drawings 80,000.00
Cash 80,000.00
to record withdrawal of owner from business

Step 3: Posting

ASSETS
Cash Accounts Receivable
Be Be
g 50,000.00 5,000.00 4 g 120,000.00 200,000.00 8
1 80,000.00 60,000.00 6 2 130,000.00
8 200,000.00 20,000.00 7
60,000.00 9
80,000.00 10
Bal 105,000.00 Bal 50,000.00

Inventory Equipment
Beg 30,000.00 Beg 200,000.00
Bal 30,000.00 Bal 200,000.00

Accumulated
Depreciation

80,000.00 Beg
 80,000.00 Bal
LIABILITIES
Accounts Payable
5 10,000.00 20,000.00 Beg
9 60,000.00 70,000.00
20,000.00 Bal

EQUITY
Jim Boy, Capital Jim Boy, Drawings
300,000.00 Beg 10 80,000.00
300,000.00 Bal Bal 80,000.00

INCOME

Sales

80,000.00 1
130,000.00 2

210,000.00 Bal

EXPENSES
Purchases Freight-in
3 70,000.00 4 5,000.00
Bal 70,000.00 Bal 5,000.00

Purchase returns Salaries expense

10,000.00 6 60,000.00
10,000.00 Bal Bal 60,000.00

Utilities expense

7 20,000.00

Bal 20,000.00

Step 4: Unadjusted Trial Balance

Jim Boy Trading Co.

Unadjusted Trial Balance
December 31, 2021

Accounts Debit Credit

Cash 105,000.00
Accounts receivable 50,000.00
Inventory 30,000.00
Equipment 200,000.00
Accumulated depreciation 80,000.00
Accounts payable 20,000.00
 Jim Boy, Capital 300,000.00
Jim Boy, Drawing 80,000.00
Sales 210,000.00
Purchases 70,000.00
Freight-in 5,000.00
Purchase returns 10,000.00
Salaries expense 60,000.00
Utilities expense 20,000.00
Totals 620,000.00 620,000.00

Step 5: Adjusting entries

AJE 1 Depreciation Expense 20,000.00

Accumulated Depreciation 20,000.00
to record the depreciation expense for the year

AJE 2 Inventory, End 60,000.00

Income Summary 60,000.00
to recognize the ending inventory

Closing entries

#1 Income Summary 30,000.00

Inventory, Beg 30,000.00
to close beginning inventory to income summary

#2 Sales 210,000.00
Purchase returns 10,000.00
Purchases 70,000.00
Freight-in 5,000.00
Salaries expenses 60,000.00
#3 IncomeUtilities
Summary expenses 75,000.00 20,000.00
Jim Boy, Capital
Depreciation expense 75,000.00
20,000.00
to closeIncome
beginning
Summary to income summary
inventory 45,000.00
to close income and expense accounts to income
summary
Income Summary Jim Boy Trading Co.
60,000.00 AJE 2Sheet
Balance
45,000.00 CLE
As of December 31, 2020
CLE #1 30,000.00 #2
ASSETS 75,000.00 Bal
Cash 105,000.00
Accounts receivable 50,000.00
Inventory 60,000.00
#4 Jim Boy, Capital 80,000.00
Equipment 200,000.00
Jim Boy, Drawing 80,000.00
Accumulated depreciation (100,000.00)
to close beginning inventory to income summary
TOTAL ASSETS 315,000.00

LIABILITIES
Accounts payable 20,000.00
TOTAL LIABILITIES 20,000.00

EQUITY
Jim Boy, Capital 295,000.00

TOTAL LIABILITIES & EQUITY 315,000.00

 Jim Boy Trading Co.
Income Statement
For the year ended December 31, 2020

Sales 210,000.00
Cost of Goods Sold:
Inventory, beg 30,000.00
Purchases 70,000.00
Freight-in 5,000.00
Purchase returns (10,000.00)
Total Goods available for sale 95,000.00
Inventory, End (60,000.00) (35,000.00)
Gross Profit 175,000.00
Salaries Expense (60,000.00)
Utilities Expense (20,000.00)
Depreciation Expense (20,000.00)
Profit for the year 75,000.00