ST. JOSEPH COLLEGE - OLONGAPO Inc.

SENIOR HIGH SCHOOL DEPARTMENT

Lecture Notes
in
Bookkeeping
NC III
Bookkeeping NC III What is Bookkeeping NC III ?

BOOKKEEPING NC III
Qualification consists of competencies to
enable him/her to journalize transactions,
post transactions, prepare trial balance,
prepare financial reports and review internal
control system.
Bookkeeping NC III TOPICS FOR NC III
CHAPTER TOPIC

1 Accounting for Merchandising

2 Chart of Accounts to Journalizing Process

3 Posting to the Ledger and Trial Balance

4 Financial Statements

5 Closing Entries and Post Closing Trial Balance

Accounting Cycle for a Merchandising Concern

6
(Perpetual Method)

7 Adjusting Entries
Bookkeeping NC III Accounting for
Merchandising
Definition &
Nature

Two (2) Methods

Comparison of 2
Methods

CHAPTER Accounts
T-Accounts

Sales Discounts
Bookkeeping NC III Definition & Nature of Merchandising Concern
MERCHANDISING BUSINESS
EARNS REVENUE BUSINESS ORGANIZATION

SELLING GOODS OR BUYING AND

MERCHANDISE SELLING OF GOODS

MERCHANDISE
WHOLESALE or GOODS or COMMODITIES BOUGHT
RETAIL BASIS at a certain amount of PROFIT
CHAPTER 1: Accounting for Merchandising
Bookkeeping NC III 2 INVENTORY METHODS

MERCHANDISING BUSINESS
PERPETUAL PERIODIC
INVENTORY METHOD INVENTORY METHOD

CHAPTER 1: Accounting for Merchandising

Bookkeeping NC III 2 INVENTORY METHODS
PERPETUAL INVENTORY METHOD
 Cost of goods sold and ending inventory
may be determined from the accounting
records without physical counting of goods.

PERIODIC INVENTORY METHOD

 Cost of goods sold and ending inventory is
determined by physically counting the items
and multiplying the number of items by its
cost at the end of each period.

CHAPTER 1: Accounting for Merchandising

Bookkeeping NC III PERIODIC INVENTORY METHOD
 A company does not maintain a continuous
record of the physical quantities of inventory
on hand.

 PERIODic meaning, physically count at the

end of period.

 COGS is used to identify the inventory used

and the cost used.

CHAPTER 1: Accounting for Merchandising

Bookkeeping NC III PERIODIC INVENTORY METHOD
COST OF GOODS SOLD is computed using the
following formula

Merchandising Inventory, beginning XX

ADD: NET PURCHASES
Purchases XX
Freight In XX
TOTAL XX
LESS: Purchase Discount XX
Purchase Return and Allowances XX XX
TOTAL GOODS AVAILABLE FOR SALE XX
LESS: Ending Inventory XX
COST OF GOODS SOLD XX

CHAPTER 1: Accounting for Merchandising

Bookkeeping NC III PERPETUAL INVENTORY METHOD
 A company maintains a continuous record of
the changes of the physical quantities of
inventory on hand.

 meaning, physically count in every changes

in inventory per transaction.

 Upon SALES, there are 2 journal entries, for

the 1original transaction and the 2inventory
method.

CHAPTER 1: Accounting for Merchandising

 COMPARISON OF 2 METHODS
TRANSACTION PERIODIC PERPETUAL
1. Upon Purchase of Purchases Merchandise Inventory
Goods
Cash or Accounts Payable Cash or Accounts Payable
2. Upon paying Freight Freight In Merchandise Inventory
(borne by buyer)
Cash or Accounts Payable Cash or Accounts Payable
3. Upon Purchase Cash or Accounts Payable Cash or Accounts Payable
Return and Allowances
Purchase Return and Merchandise Inventory
Allowances
4. Upon Purchase Cash or Accounts Payable Cash or Accounts Payable
Discount
Purchase Discount Merchandise Inventory
5. Upon Sales Cash or Accounts Payable Cash or Accounts Payable
Sales Sales
COGS
Merchandise Inventory
6. Upon Sales Returns Sales Returns and Allowances Sales Returns and Allowances
Cash or Accounts Cash or Accounts
Receivable Receivable
Note: in the actual examination, they Merchandise Inventory
do not recognize this:
CHAPTER 1: Accounting
COGS
for Merchandising
 MERCHANDISING ACCOUNTS
An income account which is credited when the goods or
Sales
merchandise are sold either by cash or on account basis.
Result from the return of any unsatisfactory merchandise.
Sales Return
Deduction from sales and is debited when defective goods
and Allowances
are returned by the buyer.
An account off the regular price of goods that is granted for
early payment.
Sales Discount Debited when an amount of discount is granted to the buyer.
Can be deducted from sales or may be considered as other
expense.
Revenue from Consists of gross sales less returns and allowances from
Sales / Net discounts.
Sales
Gross Profit Is divided by subtracting cost of sales from net sales.
from Sales

CHAPTER 1: Accounting for Merchandising

 MERCHANDISING ACCOUNTS
Is the accumulated cost of all merchandise bought for resale during
as accounting period.
Purchases
It is debited when goods or merchandise are brought either on
account or on cash basis.
Purchase Deduction from purchases.
Returns and Credited when defective merchandise is returned to the supplier
Allowances
Credited when the supplier granted the buyer and amount of
Purchase
discount.
Discount
Deduction from purchase or other income.

Debited if the business shoulders the payment of goods bought.

Freight In
Added to purchases and a part of cost of sales.
One of the operating expenses of the business.
Freight Out
Debited upon payment of the delivery of the goods sold.
Merchandise Goods for sale
Inventory
Consists of the cost of merchandise on hand at the beginning of the
Cost of Goods
accounting period, net cost of merchandise purchased including cost
Sold
of transporting of goods bought during the period.
CHAPTER 1: Accounting for Merchandising
 RULES ON T-ACCOUNTS

DEBIT CREDIT

PURCHASES SALES
SALES RETURN AND ALLOWANCES PURCHASE RETURNS AND
SALES DISCOUNTS ALLOWANCES
FREIGHT IN PURCHASE DISCOUNTS
FREIGHT OUT

CHAPTER 1: Accounting for Merchandising

 SALES DISCOUNTS

TRADE DISCOUNTS CASH DISCOUNTS

• Using catalog where the goods are • Goods are sold on credit
listed with their prices. • Terms of payment depend on the
• A percentage reduction from a custom of the industry.
published list price may be granted to
retailers or wholesalers for buying
LARGE QUANTITIES or for regularly
patronizing the business.

CHAPTER 1: Accounting for Merchandising

 TRADE DISCOUNTS

EXAMPLE
Assuming that Furniture and Fixtures with a list price of P 30,000 was
given a trade discount of 4% and 3%. How much is the gross invoice price?

List Price P 30,000

LESS: Trade discount (4%) 1,200
P 28,800
LESS: Trade discount (3%) 864
Gross Invoice Price P 27,936

CHAPTER 1: Accounting for Merchandising

 CASH DISCOUNTS

CREDIT TERMS
The usual credit terms which appear on the invoices are:

n/30 (the gross amount is payable within 30 days from the date of sale)

2/10,n/30 (the account is payable within 30 days with a 2% discount given if

the account is paid within 10 days from the date of sale)

3/EOM, n/60 (the account is payable within 60 days with a 3% discount

given if the account is paid until the end of the month from the date of sale)

2/10,1/15,n/30 (the account is payable within 30 days with a 2% discount if

the account is paid within 10 days from the date of sale, but only a 1%
discount if the account is paid after 10 days but within 15 days from the date
of sale)

CHAPTER 1: Accounting for Merchandising

 Accounting for
Merchandising
Definition &
Nature

Two (2) Methods

Comparison of 2
Methods

QUESTIONS Accounts
T-Accounts

Sales Discounts