College of Business, Entrepreneurship and Accountancy
MIRIAM COLLEGE
COURSE OUTLINE2nd Semester, SY 2012-2013
Business Administration Department
College of Business, Entrepreneurship and Accountancy
College of Business, Entrepreneurship and Accountancy
Course CodeBSA – 102
Course Title
Principles of Accounting Part 2
College of Business, Entrepreneurship and Accountancy
Principles of Accounting, Part 1Business entities may engage in any of the following type of business. These are:
1. Service business. This business renders services to customers or clients for a fee. Examples of service type of business are: public transport companies, beauty parlors, security agencies, repair shops, laundry shops, schools, medical or health clinics, event coordinators, law offices, accounting firms and advertising firms.
2. Merchandising business or trading. This kind of business buys goods or commodities and sells the same at a profit. Examples are: grocery stores, supermarkets, hardware stores drugstores, car dealers, real estate dealers and appliance stores.
3. Manufacturing business, This type makes finished goods from raw materials or unassembled parts. A manufacturing business produces the goods that it sells. Examples are: shoe factories, garment factories, car assembler and food processing plants.
College of Business, Entrepreneurship and Accountancy
Merchandise Inventory
• Merchandise– Goods that a Merchandising company sells to its
customers regardless of the type of products the company sells
• Merchandise Inventory– Is the cost of goods on hand available for sale at
any given time
College of Business, Entrepreneurship and Accountancy
Business Documents
• Invoice– prepared by the seller– Contains detail of the sale
• Quantity• Item Description• Unit Price• Total Price • Term of sale• Total Amount Sold• Manner of Shipment
College of Business, Entrepreneurship and Accountancy
• Purchase Order– Prepared by the purchasing department– Sent to Supplier – Asking for items to be shipped to the purchaser
• Receiving Report– Prepared by receiving department– Showing
• Quantity• Item Description
College of Business, Entrepreneurship and Accountancy
Recording Sales
• Credit Memorandum– A note issued by the seller– Indicating amount and reason for the credit
• Debit Memorandum– A note issued by the buyer who is returning the
merchandise to the seller – Indicating the amount and reason for the debit
College of Business, Entrepreneurship and Accountancy
Trade Discount
• List Price – Original price quoted by the seller
• Trade Discount – Discount given and deducted from the list price– Reduce the cost of the catalog price– Grant for quantity discount– Allow of quotation of different price
• Chain Discount – Several trade discount granted to buyer
College of Business, Entrepreneurship and Accountancy
Recording Trade Discount
• List price – 1,000 umbrella at P100.00 P 100,000.00
• Trade Discount Large Volume– 10% Volume discount 10,000.00
– (P 100,000.00 x 10%) P 90,000.00
• Trade Discount – No Sales Invoice Discount– 7% No invoice Discount 6,300.00– (P 90,000 x 7%)– Gross Invoice Price P 83,700.00
College of Business, Entrepreneurship and Accountancy
Sales (Cash) Discount
• Term of payment (Credit Term)– States when payment is to be made
• n/30 means 30 days after the date of sale• n/45 means 45 days after the date of sale
• Cash discount– A deduction from the gross invoice price that the
buyer can take if he pays within a specified period of time
• 2/10, n/30• 3/EOM, /60
College of Business, Entrepreneurship and Accountancy
Recording Sales• Sold 530 units for P7 each (Terms 2/15, n/90)
• On Account
Accounts Receivable 3,710.00Sales 3,710.00
• If paid within discount period
Cash 3,635.80Sales Discount 74.20Accounts Receivable 3,710.00
College of Business, Entrepreneurship and Accountancy
Sales Return and Allowances
• Sales Return– Merchandise returned by a buyer that is
considered a cancellation of sales
• Sales Allowance– Is granted if the customer keeps the merchandise
although dissatisfied
• EntrySales Return and Allowances xxx
Accounts receivable xxx
College of Business, Entrepreneurship and Accountancy
Reporting Net Sales
Revenue from SalesGross Sales P XXXLess : Sales Discount P XXX
Sales Return and Allowances XXX XXX
Net Sales P XXX
Merchandise CompanyComprehensive Income Statement
For the Year ended December 31, 20XX
College of Business, Entrepreneurship and Accountancy
Inventories
Perpetual Inventory Systems
• Inventory System wherein the inventory records are continuously updated for the following events– Purchases– Purchase Discounts Taken– Purchase Returns & Allowances– Sales (remove from inventory the COST of the units sold)– Sales Returns (add to inventory the COST of units returned)
• Used by companies with high value merchandise
• A physical count is done at the end of the year and is compared with the recorded balances on hand
College of Business, Entrepreneurship and Accountancy
Periodic Inventory System
• inventory transactions are not recorded directly in the Inventory account
• Uses separate accounts for each transaction– Purchases– Purchase Returns & Allowances– Purchase Discounts– Transportation In
• Used by companies with low value merchandise
• A physical count is done at the end of the year and to determine the balance at the end of the period
College of Business, Entrepreneurship and Accountancy
Recording Purchases• Purchased 530 units for P7 each (Terms 2/15,n/90)
• On Account
Purchases 3,710.00Accounts Payable 3,710.00
• If paid within discount period
Accounts Payable 3,710.00Purchase Discount 74.20Cash 3,635.80
College of Business, Entrepreneurship and Accountancy
Purchase Return and Allowances
• Purchase Return– Merchandise returned by the buyer that is
considered a cancellation of purchase
• Purchase Allowance– Is granted if the customer keeps the merchandise
although dissatisfied
• Entry Accounts Payable xxx
Purchase Return and Allowances xxx
College of Business, Entrepreneurship and Accountancy
Freight Charges / Delivery Cost
FOB Shipping Point FOB Destination
Shipping Point Buyer Owns Shipment
Destination Buyer Owns Shipment
Who owns the shipment Buyer Seller
Shipment destroyed at sea Buyer Seller
Transportation Cost Buyer Seller
Freight Prepaid
Freight Collect
Seller pays the freight at the time of shipment
Buyer pays the freight upon arrival of the goods
College of Business, Entrepreneurship and Accountancy
Physical Inventory
• Taking a physical inventory consists of counting the physical units of each type of merchandise on hand
• Regardless of location– Goods shipped to a potential buyer “on approval” are
not considered sold– Goods on consignment are not considered sold
• Merchandise in transit– Merchandise in the hand of freight company on the
date of the physical count depending on the passage of title
College of Business, Entrepreneurship and Accountancy
Cost of Goods SoldCost of Goods sold
Merchandise Inventory, Jan 1, 20XX P XXXPurchases P XXXAdd transportation In XXX
Delivered Cost of Merchandise Purchased P XXXLess : Purchase Discount P XXX
Purchase Return and Allowances XXX XXX XXX
Goods Available for Sale P XXXLess : Merchandise Inventory, Dec 31, 20XX XXX
Cost of goods sold XXX
College of Business, Entrepreneurship and Accountancy
Value Added Tax
• Section 106 of the National Internal Revenue Code - 12% VAT on Sales of goods or properties
• Section 106 of the National Internal Revenue Code - 12% VAT on Sales or exchange of services
• The Liability to the government is recorded as follows:
Cash 1,120.00VAT Payable 120.00Sales 1,000.00
To record sales of P 1,000.00 subject to 12% VAT