Inventory System
“Recording Part”
Importance of Recording
• Determine if the business is profitable or not
• Able to keep track of your expenses
• Keep track of your sales
• Monitor the inventory sold and on hand
Income Statement
Net Sales xxx
Cost of Sales (xxx)
Gross Profit xxx
Add:Other Income xxx
Less: Expenses (xxx)
Net Income xxx
Income Statement
Gross Sales xxx
Sales Returns and (xxx)
allowances
Sales Discounts (xxx)
Net Sales xxx
Income Statement
Merchandise Inventory beg. xxx
Purchases xxx
Total Goods Available for sale xxx
Merchandise Inventory end (xxx)
Cost of Sales xxx
How do I record the inventory?
Two Methods
1 Perpetual Inventory
System
2 Periodic Inventory
System
Perpetual Inventory
System
• Continuous recording of inventory account
• Computerized system
• Common with Supermarkets, restaurants and department
stores
• Important to low volume & high priced goods (e.g. Motor
vehichles)
Perpetual Inventory
System
Purchase of inventory = Merchandise Inventory
Sale of inventory = Sale & Cost of Goods
Sold
Note: Merchandise inventory end. = physical count
Periodic Inventory System
• No continuous recording of inventory account
• No computerized system used
• Common with low priced goods (e.g. Sari2x
store)
Perpetual Inventory
System
Purchase of inventory = Purchases
Sale of inventory = Sale
Note: Merchandise inventory end. = physical count
Account Titles
Revenue Account
• Sales
Contra-sales/income Accounts
1. Sales Discounts
2. Sales Returns and Allowances
Account Titles
Expense Account
• Cost of Sales
Comprises:
1. Purchases • Administrative Expenses
Contra-account
• Selling Expenses
a. Purchase returns and allowances
b. Purchase discounts
1. Transportation Out
2. Transportation In
Account Titles
Asset Account
• Cash
• Accounts Receivables
• Merchandise Inventory
Common account titles used:
• Merchandise inventory • Cost of Sales/Cost of Goods Sold
Merchandise Inventory beg. • Purchase
Merchandise Inventory end • Purchase returns and allowances
• Sales • Purchase Discount
• Sales returns and allowances • Freight In
• Sales Discount • Freight Out
“Gross Sales”
• Consists of cash sales and sales on account/on credit
Account Title:
Sales = Credit Balance
Situation 1:
Sept 16-Calamba Trader’s sold merchandise worth 25,000php
• Sale on Account/Credit
Accounts Receivables 25,000
Sales 25,000
To record sale of merchandise on account
• Sale for cash
Cash 25,000
Sales 25,000
To record sale of merchandise for cash
Sept 20-Calamba Trader’s sold merchandise for P3,000, terms 2/10,
n/30.
Journal Entry:
Accounts Receivables 3,000
Sales 3,000
To record sale of merchandise on account
“Sales Discounts”
Sept 30-Calamba Trader’s received payment from Sept 20.
Journal Entry:
Cash 2,940
Sales Discounts 60
Accounts Receivable 3,000
To record collection of sale on Sept. 20
“Sales Returns and Allowances”
Nov. 2 -Calamba Trader’s received a return of merchandise worth
760php.
Journal Entry:
Sales Returns and allowances 760
Accounts Receivable 760
To record a return of merchandise from customer
“Sales Returns and Alllowances”
Nov. 4 -Calamba Trader’s purchase merchandise in cash costing P1,500.
Journal Entry:
Purchases 1,500
Cash 1,500
To record a purchase of merchandise on cash
“Purchase Returns and Alllowances”
Nov. 6 –Returned P500 cost of merchandise purchased on Nov. 4 due to
some defects .
Journal Entry:
Cash 500
Purchase returns and allowances 500
To record a return of merchandise purchase
“Purchase Returns and Alllowances”
Nov. 7 –Purchase
merchandise on account from Dela Cruz Trading,
P1,705. Term 3/10, n/30.
Journal Entry:
Purchases 1,705
Accounts Payable 1,705
To record a merchandise purchased on account
“Purchase Discount”
Nov. 11 –Paid the merchandise purchased on Nov. 7 costing P700.
Journal Entry:
Accounts Payable 700
Purchases Discount 21
Cash 679
To record a merchandise purchased on account
“Purchase Discount”
Nov. 18 –Paid the remaining balance of the merchandise purchased on
Nov 7..
Journal Entry:
Accounts Payable 1,005
Cash 1,005
To record the payment of merchandise purchased on account
Freight Terms
Freight Terms Ownership Who Actually paid the Effect on the cash receipt
&Should shoulder Shipping Costs of the seller from the
shipping cost buyer
FOB Destination, Freight Seller Seller No effect
Prepaid Seller= Freight Out
FOB Destination, Freight Seller Buyer Decrease
Collect Seller= Freight Out
FOB Shipping , Freight Buyer Buyer No effect
Collect Buyer= Freight In
FOB Shipping, Freight Buyer Seller Increase
Prepaid Buyer= Freight In
“FOB Destination, Freight Prepaid”
Sold merchandise on account to Juan Rodrigo Ent. P2,500. Term
2/10,n/30. Paid freight on shipment P250.
Journal Entry:
Accounts receivable 2,500
Freight Out 250
Sales 2,500
Cash 250
To record a return of merchandise from customer
“FOB Destination, Freight Collect”
Sold merchandise on account to Juan Rodrigo Ent. P2,500. Term
2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Accounts receivable 2,250
Freight Out 250
Sales 2,500
To record a return of merchandise from customer
“FOB Shipping, Freight Collect”
Sold merchandise on account to Juan Rodrigo Ent. P2,500. Term
2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Accounts receivable 2,500
Sales 2,500
To record a return of merchandise from customer
“FOB Shipping, Freight Prepaid”
Sold merchandise on account to Juan Rodrigo Ent. P2,500. Term
2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Accounts receivable 2,750
Sales 2,500
Cash 250
To record a return of merchandise from customer
“FOB Destination, Freight Prepaid”
Purchased merchandise on account from Maningcol Corp. costing
P1,350. Term 2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Purchases 1,350
Accounts Payable 1,350
To record the purchased of merchandise on account
“FOB Destination, Freight Collect”
Purchased merchandise on account from Maningcol Corp. costing
P1,350. Term 2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Purchases 1,350
Cash 250
Accounts Payable 1,100
To record the purchased of merchandise on account
“FOB Shipping, Freight Collect”
Purchased merchandise on account from Maningcol Corp. costing
P1,350. Term 2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Purchases 1,350
Freight In 250
Cash 250
Accounts Payable 1,350
To record the purchased of merchandise on account
“FOB Shipping, Freight Prepaid”
Purchased merchandise on account from Maningcol Corp. costing
P1,350. Term 2/10,n/30. Freight cost amounting to P250.
Journal Entry:
Purchases 1,350
Freight In 250
Accounts Payable 1,550
To record the purchased of merchandise on account
Situation 1: Perpetual Inventory System
Oct 7 –Sold
merchandise on credit to Maymay Enterprises, terms n/30,
FOB Shipping point, P30,000 selling price with a cost of P20,000
• Sale on Account/Credit
Accounts Receivables 30,000
Sales 30,000
To record sale of merchandise on account
• Cost of Goods Sold
Cost of Sales 20,000
Merchandise Inventory 20,000
To record the cost of merchandise sold
Situation 1: Perpetual Inventory System
Oct 8 –Purchase
merchandise on credit from Ornament Retailer,
terms n/30, FOB shipping point, P55,000
• Entry
Merchandise Inventory 55,000
Accounts Payable 55,000
To record purchase of merchandise on account
Situation 1: Perpetual Inventory System
Oct 9–Paid
J&T Corp. for shipping charges on merchandise
purchased on Oct. 8, P2,540
• Entry
Merchandise Inventory 2,540
Cash 2,540
To record purchase of merchandise on account
Situation 1: Perpetual Inventory System
Oct 10–Purchased
merchandise on credit form Ortega Imports, terms
n/30, FOB shipping P90,000, Freight prepaid by Ortega P6,000
• Entry
Merchandise Inventory 96,000
Accounts Payable 96,000
Periodic I.S.
To record purchase of merchandise on account
Purchases 90,000
Freight In 6,000
Accounts Payable 96,000
To record purchase of merchandise on account
Situation 1: Perpetual Inventory System
Oct 13–Purchaseoffice supplies on credit from Dedumo Corp.,
terms n/10, P24,000.
• Entry
Office supplies expense 24,000
Accounts Payable 24,000
To record purchase of office supplies on account
Situation 1: Perpetual Inventory System
Oct 14–Returned damaged merchandise received from Ornament
Retailer on Oct. 8 for credit, P6,000.
• Entry
Accounts Payable 6,000
Merchandise Inventory 6,000
To record return of merchandise purchase
Situation 1: Perpetual Inventory System
Oct 17–Received
check payment from Maymay Enterprises for its
purchase made on Oct. 7.
• Entry
Cash 30,000
Accounts Receivable 30,000
To record return of merchandise purchase
Situation 1: Perpetual Inventory System
Oct 24– Accepteda return of merchandise sold on account , with selling
price of P2,000 and a cost is based on 80% of the selling price.
• Entry 1
Sales returns and allowances 2,000
Accounts Receivable 2,000
To record return of merchandise sold on account
• Entry 2
Merchandise Inventory 1,600
Cost of Sales 1,600
To record the cost of merchandise returned
