FABM 1 QUARTER 4 MODULE 11 ACCOUNTING CYCLE OF A MERCHANDISING BUSINESS PDF

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Fundamentals ofAccountancy, Businessand Management 1Quarter 4 – Module 11:Accounting Cycle of aMerchandising BusinessISenior High SchoolWriter:ARBEL S. ICBANT-III Sta. Cruz High Integrated School Editors: JANE P. VALENCIA, EdD – Math/ABM Supervisor CHAIRMAN ANGELINA B. CAWIGAN – Master Teacher II MA...

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Senior High School

Fundamentals of Accountancy, Business and Management 1 Quarter 4 – Module 11: Accounting Cycle of a Merchandising Business

Writer:

ARBEL S. ICBAN T-III Sta. Cruz High Integrated School Editors: JANE P. VALENCIA, EdD – Math/ABM Supervisor CHAIRMAN ANGELINA B. CAWIGAN – Master Teacher II MARIZ JEAN C. SANGCAP – Teacher III

What I Need to Know

This module was designed and written with you in mind. It is here to help you master the Accounting Cycle of a Merchandising Business. The scope of this module permits it to be used in many different learning situations. The language used recognizes the diverse vocabulary level of students. The lessons are arranged to follow the standard sequence of the course. But the order in which you read them can be changed to correspond with the textbook you are now using. The module has one lesson, namely: 

Lesson 1 – Nature of Transactions of a Merchandising Business

After going through this module, you are expected to: 1. 2. 3. 4.

define merchandising business; describe the nature of transactions of a merchandising business; differentiate merchandising business from service business; and give examples of merchandising business within the community

What I Know

Directions: Choose the letter of the best answer. Write the chosen letter on a

separate sheet of paper. 1. The main difference of a merchandising business over a service business is a. It has no inventory. b. It has production facility. c. It does not need employees. d. It provides tangible products. 2. Which of the following statements regarding merchandising is false? a. Provide tangible products. b. May sell directly either to customers or retailers. c. Buy raw materials, convert them into finished goods, and sell the goods to customers. d. Generally incur less cost relative to other types of business as they consume less conversion time and effort. 3. This is the most important assets of a merchandising business. a. Accounts Receivables b. Building c. Equipment d. Inventory 4. Which of the following is an example of a merchandising business? a. Beauty Salon b. Bus Company c. Carwash Business d. Drug store 5. What a. b. c. d.

is the primary source of revenues of merchandising business? Performance of service Sale of goods Both a and b None of the above

6. Cost of goods sold is computed by __________.

a. Adding the gross purchases to beginning inventory to get the cost of goods available for sale from which the ending inventory is deducted from. b. Adding the net purchases to beginning inventory to get the cost of goods available for sale from which the ending inventory is deducted from. c. Subtracting the gross purchases to beginning inventory to get the cost of goods available for sale from which the ending inventory is deducted from. d. Subtracting the net cost of purchases to beginning inventory to get the cost of goods available for sale from which the ending inventory is deducted from. 7. The following are examples of operating expenses, except one a. Cost of goods sold b. Depreciation c. Salaries d. Utilities 8. Cost of goods sold is deducted from sales revenue in order to get __________ in the income statement of a merchandising business. a. Ending inventory b. Gross profit c. Net profit d. Operating expenses 9. What is the normal operating cycle of a merchandising business? a. Provide services to customers. b. Buy raw materials, convert them into finished goods, and sell the goods to customers. c. Consists of buying merchandise, selling merchandise, billing customers, and collecting customer accounts. d. None of the above. 10. Statement 1: The accounting cycle for a service business is the same with that of a merchandising business. Statement 2: The major difference of the operating cycle of a merchandising business and a service company is the storing of inventory. a. Statement 1 is true; statement 2 is false. b. Statement 1 is false; statement 2 is true. c. Both statements are true. d. Both statements are false.

Lesson

1

Nature of Transactions of a Merchandising Business

Aside from service and manufacturing, merchandising business is also a type of business according to activities under Chapter 5. This type of business is engage in buying and selling of goods or merchandise. In this module, the nature of transactions of a merchandising business will be discussed.

What’s In Activity 1. Complete the diagram below by recalling the accounting cycle of a service business. ? . 5

? . 1

? .3 4

? . 2

ACCOUNTING CYCLE

Notes to the Teacher The accounting cycle for a merchandising business is the same with that of a service business.

What’s New

Directions: Read and answer the following questions.

Imagine yourself putting up a merchandising business. What will be your business name? What goods or merchandise are you going to sell to your target customers?

Questions: 1. What is the most important asset of a merchandising business? 2. Differentiate merchandising business and service business. 3. What are the possible activities or transactions of a merchandising business?

What is It

Merchandising Business – refers to an enterprise that buys and sells goods to earn a profit.

Buy Merchandise

Collect Customer Accounts

Sell Merchandise

Bill Customers

Merchandising Operating Cycle

MERCHANDISE OR MERCHANDISE INVENTORY - refers to an item bought by a business for the purpose of reselling it.

SALES OR SALES REVENUE – this is the primary source of revenue in merchandising business.

Sales Returns and Allowance - a customer may return merchandise if it broken or if it is not as ordered.

Sales Discount – two usual discounts granted to customers are (1) trade discounts and (2) cash discounts:

Trade Discounts – a percentage reduction from a published list price may be granted to customers for patronizing the business. This is immediately deducted from the list price.

Cash Discounts – when goods are sold on credit, terms of payment depend on the custom of the industry. Usual credit terms: n/30 (gross amount is payable within 30 days from the date sale), or 2/10,n/30 (gross amount is payable within 30 days with 2% discount given if the account is paid within 10 days).

PURCHASES - represents goods available for sale by the business for a particular accounting period.

Purchase Returns and Allowances – goods bought may be returned to the seller for being defective, spoiled or not as ordered.

Purchase Discount – discount claimed by the buyer.

TRANSPORTATION/FREIGHT COSTS – The two most common arrangements for transportation or freight costs are FOB Shipping Point and FOB Destination.

FOB Shipping Point – buyer should pay for the freight. This is added to Purchases to get the gross purchases.

FOB Destination – seller is liable for the freight. Expenses: 

Cost of Goods Sold or Cost of Sales – the amount of merchandise sold by the business for a given period. The formula to compute for cost of goods sold is: Merchandise Inventory, beginning

Add: Net Purchases Cost of Goods Available for Sale Less: Merchandise Inventory, ending Cost of Goods Sold Operating Expenses – refer to expenses incurred by the business in their day-to day operations. Examples: salaries, utilities, rent, supplies, insurance, transportation, depreciation, delivery, and advertising. In the income statement for merchandising business, cost of goods sold is deducted from sales revenue in order to get gross profit. Operating expenses are then deducted from gross profit to get the net income or net loss for the period. Below is a comparison of a service business and a merchandising business income statement: 

Service Business Revenues

Less: Operating Expenses Net Income (Loss)

Merchandising Business Net Sales Revenues Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Net Income (Loss)

What’s More

Crossword Puzzle. Read the clues below and fill in the correct answer.

Across: 2. amount of merchandise sold by the business for a given period 4. FOB Shipping Point, FOB Destination

Down: 1. 2/10, n/30 3. item bought by a business for the purpose of reselling it 5. cost of goods sold is deducted

6. discount claimed by the buyer 7. primary source of revenue in merchandising business 9. goods available for sale by the business for a particular accounting period

from sales revenue 8. trade discount, cash discount

What I Have Learned

Directions: Use the Frayer Model to complete the key concepts associated with a merchandising business.

DEFINITION

CHARACTERISTICS

Notes to the Teacher The Frayer Model is a graphic organizer used for word analysis that prompts students to think about and describe the meaning of a word or concept.

What I Can Do EXAMPLES

NON-EXAMPLES

Supposed you named your merchandise business #WeHealAsOne Drug Store and operated it in your community, how will you keep your business running during the COVID-19 pandemic?

Rubrics for Essay: Content 3 Substantial, specific, points and/or illustrative content demonstrating strong development and sophisticated ideas. 2 Sufficiently developed points content with adequate elaboration or explanation.

1 point

Organization Sophisticated arrangement of content with evident and/or subtle transitions.

Functional arrangement of content that sustains a logical order with some evidence of transitions. Limited content with Confused or inadequate inconsistent elaboration or arrangement of explanation. content with or without attempts at transition.

Conventions Evident control of grammar, mechanics, spelling, usage and sentence formation. Sufficient control of grammar, mechanics, spelling, usage and sentence formation. Limited control of grammar, mechanics, spelling, usage and sentence formation.

Assessment

True or False. Write true if the statement is correct, otherwise, false on the space before each item.

_____

1. Merchandise businesses may be referred to as buy-and-sell companies.

_____

2. The transactions for a service business are similar to those in a merchandising business except in the recording of transactions that relate to the primary source of revenue and related costs.

_____

3. In order to generate revenue in a merchandising business, the business must be able to render services.

_____

4. The major difference of the operating cycle of a merchandising business and a service company is the storing of inventory.

_____

5. The existence of a tangible product provides a leeway to service and merchandising business to make customers notice their products, thereby promoting sales.

_____

6. Cost of goods sold is computed by adding the net cost of purchases to beginning inventory to get the cost of goods available for sale from which the ending inventory is deducted from.

_____

7. Gross profit is equal to sales revenue less the operating expenses.

_____

8. Cost of goods sold is deducted from gross profit to get the net income or net loss for the period of merchandising business.

_____

9. The normal operation of a merchandising business is consisting of buying merchandise, selling merchandise, billing customers, and collecting customer accounts.

_____

10. Merchandise inventory is the most important asset of a merchandising business.

Additional Activities

Directions: Identity at least three (3) merchandising businesses within your community and describe the nature of their transactions. An example is provided below for your reference.

Merchandise Business GNO Shop ‘N Carry

Nature of Transactions A self-service supermarket offering a wide variety of goods such as food, beverages and household products offered in retail and wholesale prices.

Answer Key

What’s More 1. 2. 3. 4. 5. 6.

Cash Discount Cost of Sales Merchandise Freight Cost Gross Profit Purchase Discount 7. Sales 8. Sales Discount 9. Purchases

What’s In 1. Posting 2. Adjusting Entries 3. Adjusted Trial Balance 4. Closing Entries 5. Reversing Entries

What I Know 1. D 2. C 3. D 4. D 5. B 6. B 7. A 8. B 9. C 10.C

Assessment 1. True 2. True 3. False 4. True 5. False 6. True 7. False 8. False 9. True 10. True

References 21st Century Accounting Process: Basic Concepts and Procedures, pages 219-234 Zenaida Vera Cruz-Manuel-

Fundamentals of Accountancy, Business and Management 1, pages 243-244 Joselito G. Florendo

Teaching Guide for Senior High School Fundamentals of Accountancy, Business, and Management 1, pages 121-124 The Commission on Higher Education in collaboration with the Philippine Normal University

Development Team of the Module Writer: ARBELS. ICBAN – T-III, Sta. Cruz High Integrated School, Lubao Editor: JANE P. VALENCIA, EdD – EPS – Mathematics Reviewer: JANE P. VALENCIA, EdD – EPS – Mathematics Illustrator: Layout Artist: Language Reviewer:. Management Team ZENIA G. MOSTOLES, EdD, CESO V, Schools Division Superintendent LEONARDO C. CANLAS, EdD, CESE. Asst. Schools Division Superintendent ROWENA T. QUIAMBAO, CESE, Asst. Schools Division Superintendent CELIA R. LACNALALE, PhD, CID Chief JANE P. VALENCIA, EdD, Education Program Supervisor, Mathematics JUNE E. CUNANAN, Education Program Supervisor/ Language Editor RUBY M. JIMENEZ, PhD., Education Program Supervisor, LRMDS...