BASIC ACCOUNTING CONCEPTS AND PRINCIPLES Relevance

Generally Accepted Accounting Principles - Relevant financial information bears on the

economic decision to be made by the user.
- Developed by accounting professionals to guide
preparers of financial statements. o Helpful in making predictions about ultimate
outcomes of past, present and future events.
- Basic assumptions and principles that govern the
(Predictive Value)
application of accounting procedures.
o Financial information enables users to confirm
o There are other more technical standards. -
earlier expectations. (Confirmatory Value)
> Philippine Accounting Standards and
Philippine Financial Reporting Standards. Materiality
- Attempts to standardize and regulate accounting - An item is considered material if its inclusion or
definitions, assumptions and methods. exclusion would make a difference in the
evaluation and decision of the users of the financial
- It sets out the agreed concepts that underlie the
information.
preparation and presentation of financial
statements for external users. o Nature of the item.
Purpose of the Conceptual Framework o Magnitude of the item to which the
information relates.
- Assists the FRSC in developing PFRS and its
review of existing PFRS. o Error judged in particular circumstances of
omission or misstatement.
- Assists the FRSC in promoting harmonization of
regulations, accounting standards and - Allows the violation of other accounting principles
procedures relating to the presentation of if an amount is considered insignificant or
financial statements. immaterial.
- “Assists preparers in applying the PFRS and in Faithful Presentation
dealing with “gray areas”.
- Faithful Representation requires that the amounts
- Assists auditors in forming an opinion as to and descriptions of financial information presented
whether the financial statements comply with the reflect actual transactions.
PFRS.
o Complete
- Assist users in interpreting financial statements;
▪ A complete depiction of an account
- Provide interested parties with information about presented on the financial information.
PFRS formulation by the FRSC.
- o Neutrality
Scope of the Conceptual Framework
▪ An information is impartial and not
- Objectives of financial reporting. biased towards the needs or desires of a
specific user.
- Qualitative characteristics of useful financial
information. o Free from error
- Definition, recognition and measurement of the ▪ There are no errors in the process of
elements of financial statements. producing financial information.
- Concepts of capital and capital maintenance.
Qualitative Characteristics of Financial Information
Comparability Underlying Assumptions
- Quality of information that enables users to Economic Entity
identify similarities and differences between at
- Business transactions are separate from the
least two sets of economic circumstances.
personal transaction of owners.
o Intracomparability
- EXCEPTION: Capital contributions and withdrawals.
▪ Comparability of financial information of
a business for at least two reporting Accrual Basis
periods.
- Business transactions are recognized in the
o Intercomparability accounting records as they occur and not when
cash is paid or received.
▪ Comparability of financial information
among different businesses. - This adheres to the revenue principle, recognition
matching principle and cost principle.
Verifiability
o Revenues
- An information can be replicated using the same
measurement method and applying the same ▪ Recorded when earned.
process. ▪ Not when cash is received.
o Direct Verification o Expenses
▪ Applying techniques and methods to ▪ Recorded when incurred
achieve the same result.
▪ Now when cash is paid.
o Indirect Verification
Going Concern
▪ Recalculating using verified information.
- In the absence of contrary information, a business
Timeliness entity is assumed to remain in existence for an
- Availability of financial information to users early indeterminate period of time.
enough to be used in marketing economic - This assumes that the company will continue to
decisions which the information might influence. exist long enough to carry out its objectives and
- Relevance of an information might be lost if there commitments and will not liquidate in the
is delay in reporting such information. foreseeable future.

Understandability Monetary Unit

- The linkage between the information and - Economic activities of a Philippine entity our
economic decision to be made by the user. measured and reported in Philippine peso.

o Quality of information - Peso is assumed to remain relatively stable over

the years in terms of purchasing power.
o Quality of user
- It disregards any inflation in the economy in which
the entity operates.
- Only transactions that can be expressed in terms of
money are recorded.
Time Period
- Life of an economic entity can be divided in to
artificial time periods for the purpose of providing
periodic reports on the economic activities of the
entity.
o Periods (Monthly, quarterly, or annually)
o Annual Periods (Calendar Year or Fiscal Year)
Basic Principles Underlying Assumptions
Cost Principle Cost-Benefit Relationship
- Cost - This relates to the notion that benefits to be
derived from providing certain accounting
o The amount spent at the time of purchase of
information should exceed the cost of providing
an item.
that information.
- Historical cost
Conservatism or Prudence
o Amounts presented in the FS.
- This dictates the accountant to choose the
- Generally, assets are recorded based on the alternative that will result in less effect on the
original cost of acquisition. financial statements.
Full Disclosure
- In preparation of the FS, sufficient information
should be included to permit stakeholders to make
informed judgments.
- If an information is important to a user that
information should be disclosed in the notes to the
FS.
Matching Principle
- This means that expenses are matched with
revenues.
- In a given accounting., the revenue recorded
should have its corresponding expense recorded in
order to show the true profit of the business.
Revenues Recognition
- Revenues are recorded not when cash is received
but rather as soon as:
o Goods
▪ Sold or delivered to customers
o Services
▪ Rendered
Objectivity
- Business transactions should have impartial
supporting evidence or documentation.
THE ACCOUNTING EQUATION AND ELEMENTS OF 2) Liabilities
FINANCIAL STATEMENTS
- Present obligations of the enterprise arising
Double-Entry Bookkeeping from the past events, the settlement of which
is expected to result in an outflow from the
- A system in which at least one debit entry and at
enterprise of resources embodying economic
least one credit entry are entered for each
benefits.
transaction.
o Accounts Payable
- Every transaction should always have equal debits
and credits. o Accrued Salaries

Debit xx o Loans Payable

Credit xx o Notes Payable
The Accounting Equation o Mortgage Payable
o Unearned Revenues
Assets = Liabilities + Equity
o Accrued Expenses
Debit Credit
3) Owner’s Equity (Capital)
- Ensuring equal debit and credit is fundamental to
the universal acceptance of the basic accounting - Equity is the residual interest in the assets of
equation. This means that the accounting equation the enterprise after deducting all its liabilities.
should be balanced at all times. a) Revenues
Account - Earned when goods are sold or services are
- Individual accounting record of the movements rendered to customers.
(increases and ecreases) in specific accounts. b) Expenses
- Each specific account has two sides → debit and - Incurred in the conduct of doing business
credit. to generate revenues.
c) Capital (capital contributions)
- Movements in each account depends its normal
balance, which is consistent with the accounting - Represents the amount directly
equation. contributed by the owners or shareholders.

- Books of Accounts → General Journal and General d) Withdrawals

Ledger - Represents the amount taken permanently
by the owners.
Major Accounts
Equity
1) Assets
- Revenues / Income
- Resources controlled by the enterprise as a o Service Revenues
result of past events and from which future
o Sales Revenues
economic benefits are expected to flow to the
enterprise. o Professional Fees Revenue

o Cash o Interest Income

o Accounts Receivable o Rent Income

o Allowance for Doubtful Accounts - Expenses

o Notes Receivable o Cost of Services

o Inventories o Cost of Sales

o Supplies o Utilities Expense
o Prepayments o Salaries Expense

o Property and Equipment o Supplies Expense

o Furnitures and Fixtures o Bad Debts Expense

o Accumulated Depreciation o Depreciation Expense

Debit Assets
- Assets o Assets increase = liabilities increase
o 101 – Cash A01 o Assets increase = equity increases
o 102 – Accounts Receivable A02 o Assets decrease = liabilities decrease
o 103 – Inventory o Assets decrease = equity decreases
o 104 – Property, Plant and Equipment o Assets decrease = some assets increase
- Expenses o Assets increase = some assets decrease
o 501 – Cost of Good Sold E-01 Liabilities
o 502 – Rent Expense o Liabilities increase = assets increase
o 503 – Supplies Expense o Liabilities increase = equity decreases
o 504 – Utilities Expense o Liabilities decrease = assets decrease
o 505 – Transportation Expense o Liabilities decrease = equity increases
- Owner’s Equity o Liabilities decrease = some liabilities increase
o 302 – Withdrawal Account o Liabilities increase = some liabilities decrease
Credit Equity
- Liabilities o Equity increases = assets increase
o 201 – Accounts Payable L02 o Equity increases = liabilities decrease
o 202 – Accrued Expenses o Equity decreases = assets decrease
o 203 – Loans Payable o Equity decreases = liability increases
- Revenues o Equity decreases = some equity increases
o 401 – Sales R-01 o Equity increases = some equity decreases
o 402 – Interest Income
o 403 – Rent Income
- Owner’s Equity
o 301 – Capital Account OE-01
 Books of Accounts
- The Bureau of Internal Revenue mandates all
businesses or persons required by law to pay
internal revenue taxes to keep permanent books
of accoutns for registration.
o Stamped Journals and Ledger
o Loose-leaf
o Accounting Information System
- These are records in which all accounts and
transactions of a business are maintained on a
regular basis.
Journal
- Used to chronologically record all transactions of a
business as they occur.
- Book of Original Entry, provides the first evidence
of formally recorded transactions.
- Advantages
o Provides a systematic and chronological
record of transactions.

Chart of Accounts o Provides adequate explanation of each

entry.
- A listing of all the account titles used by a
business. o Ensures that double-entry bookkeeping is
observed when recording transactions.
- It is tailored to the needs and operations of a
business. o Serves as evidence of legal transactions.

- Guides the bookkeeper in ensuring uniformity of - General Journal

and consistency in the use of all the accounts in o Required for all business.
recording business transactions in the General
o Used to record all transactions.
Journal.
- Special Journal
- Also helps facilitate a more efficient posting of
the entries to the General Ledger. o Optional
o Used to record specific transactions
▪ Sales Journal
▪ Purchase Journal
▪ Cash Disbursements Journal
▪ Cash Receipts Journal
o Transaction not classified in any of the above
mentioned are recorded in the General
Journal.
Ledger ADJUSTING ENTRIES
- Collective record of individual accounts used by a Accrual Basis
business.
- The effects of a transaction are recognized as they
- Book of Final Entry, provides the last records of a
occur and not as cash is received or paid.
transaction before financial statemens are
prepared. o Revenues are recorded when earned.
- Advantages o Expenses are recorded when incurred.
o Provides detailed information of transactions - The timing of cash flows is immaterial for
for a specific account in one place. determining when to recognize revenues and
expenses.
o Serves as a tool for auditors to track the flow
of business transactions for a given period. Why the need for adjustments?
- General Ledger (GL) - To reflect in the accounts information on economic
activities that have occurred but have not yet been
o Used to accumulate and clarrify individual
recorded.
transactions from the journals.
- To properly measure the profit for the period, and
- Subsidiary Ledger (SL)
to bring related asset and liability accounts to
o Provides detailed information for a specific correct balances for the financial statements.
general ledger account.
Types of Adjsuting Entries
o Accounts Receivable SL, gives detailed
- Prepaid Assets/Prepaid Expenses (Deferrals)
information of the amount due from a specific
customer. o Expenses paid in advance but not yet incurred.
o Accounts Payable SL, gives detailed information ▪ Supplies
of the amount due to a specific supplier. ▪ Prepaid Rent
▪ Prepaid Insurance
o Prepaid expenses are assets.
o Asset Method
▪ Initial Entry Prepaid Expense xx
Cash xx
Adjusting Entry Expense xx
Prepaid Expense xx
o Expense Method
▪ Expense xx
Cash xx
Prepaid Expense xx
Expense xx
- Unearned Revenues Allowance for Doubtful Accounts
o Cash received in advance but not yet earned. - This refers to the portion of receivables that are
o Unearned revenues are liabilities. doubtful of being collected.

o Liability Method - This is in adherence to the concept of prudence.

▪ Initial Entry Cash xx - Methods of Computing for Doubtful Accounts

Unearned Revenue xx 1) Direct Write Off
Adjusting Entry Unearned Revenue xx 2) Allowance Method
Rvenue xx o Percentage of Recivables
o Income Method o Percentage of Sales or Sevices
▪ Cash xx o Aging of Receivables
Revenue xx
Revenue xx
Unearned Revenue xx
- Accrued Expense (Accruals)
o Expense already incurred but not yet paid.
o Accrued expenses are liabilites.
o Expense xx
Accrued Expense/Payable xx
- Accrued Income/Revenue (Accruals)
o Expense already incurred but not yet paid.
o Accrued expenses are liabilites.
o Accrued Revenue/Receivable xx
Service Revenue xx
- Depreciation
o Systematic and rational allocation of the
depreciable cost of an asset over its estimated
uselful life.
o It only applies to tangible property, plant and
equipment except land.
o There are different methods of computing
depreciation but the most common is the
straight-line method.
𝐴𝑝𝑟𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 – 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
▪
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒

- Bad Debts
CLOSING AND REVERSING ENTRIES Post Closing Trial Balance
Closing Entries - Verifies all debits equals credits in the trial balance.
Nominal Accounts - Post-closing trial balance only have real accounts
- Temporary accounts that accumulate information Reversing Entries
related to a specific accounting period.
- Reversing Entry, a journal entry that is the exact
o Revenues opposite of a related adjusting entry made at the
o Expenses end of the period.
o Drawing - Reversing entries are optional.
Closing Procedure - Reversing a previously entered adjusting entry
does not mean that the previous entry is incorrect.
- A nominal account is said to be closed when an
entry is made such that its balance becomes zero. - Not all adjusting entries are reversed. Only those
that increased an asset or a liability account.
- Closing simply transfers the balance of one account
to another account. o Accruals
o Income Summary o Deferrals (income or expense method)
▪ Used to close revenue and expense
accounts.
Step 1: Close Revenue Accounts
- Revenue accounts have a credit balance before
closing entries are posted.
o Service Revenues xxx
Income Summary xxx
Step 2: Close Expense Accounts
- Expense accounts have a debit balance before
closing entries are posted.
o Income Summary xxx
Salaries Expense xxx
Supplies Expense xxx
Rent Expense xxx
Depreciation Expense xxx
Advertising Expense xxx
Step 3: Close Income Summary Account
- The ending balance of the income summary will be
equal to the profit or loss for the period.
o Income Summary xxx
X, Capital xxx
Step 4: Close Income Withdrawal Account
- To close the withdrawal account and transfer the
balance to the capital account.
o X, Capital xxx
X, Withdrawals xxx
MERCHANDISING OPERATIONS Nomral Operating Cycle
Merchandising Business Cash -> Purchase of Merchandise -> Merchandise ->
- Sells a particular group of products. These Sales -> Acounts Receivable -> Collection -> Cash …..
products. These products are sold in either retail or Source Documents
wholesale in the same form they are bought.
- Contain vitral informing about the nature and
Service vs. Merchandising amount of transaction.
Service - Sales Invoice
Service Revenues xx o Prepared by the seller of goods and sent to
Less: Expense (xx) the buyer. This contains the name and address
Net Income xx of the buyer, date of sale, quantity and price
--------------------------------- of goods, payment and transportation terms.

Merchandising - Bill of lading

Net Sales* xx o Issued by the carrier that specifies contractual

conditions and terms of delivery such as
Less: Cost Goods Sold* (xx)
freight terms, time, place and person to
----------------------------------------
receive
Gross Profit xx
Less: Operating Expense (xx) - Statement of Account
----------------------------------------- o Formal notice to the customer detailing the
Operating Income xx amount already due.
Other Income/Expense (xx) - Official Receipt
------------------------------------------
Net Income xx o Evidence of the receipt of cash by the seller. It
notes the invoice paid and other details of
Net Sales payment.
Gross Sales xx - Deposit Slips
- Sales Returns & Allowance (xx)
o Printed forms with depositor’s name, account
- Sales Discounts (xx) number and other detials. A validated deposit
Net Sales xx slip indicates the amount of cash or checks
actually deposited.
Cost of Goods Sold
- Check
Purchases xx
+ Transportation-in xx o Written order to a bank by the depositor to
------------------------------------------------------- pay the amount specified in the check.
Gross Purchases xx - Purhase Requisition
- Purchases Return & Allowance (xx) o Written request of a person or department to
- Purchase Discounts (xx) the purchaser of the same entity.
-------------------------------------------------------
- Purchase Order
Net Purchases xx
+ Beginnning Inverntory xx o Authorization made by the entity to the seller
------------------------------------------------------ to deliver the merchandise in as detialed in
Cost of Goods Available for Sale xx the form.

- Ending Inventory (xx) - Receiving Report

------------------------------------------------------ o A document containing information about
Cost of Goods Sold xx goods received from a vendor.
 - Credit Memorandum Entries
o From used by sellers to notify the buyers that Cash / Accounts Receivable xx
the account is being decreased due to errors Sales xx
or other factrors requiring adjustments.
To record sale of merchandise
MERCHANDISING INCOME STATEMENT
Sales Return and Allowances xx
Service vs. Merchandising Cash / Accoutns Receivable xx
Service To record return of merchandise
Service Revenues xx Cost of Goods Sold
Less: Expense (xx) Purchases xx
Net Income xx + Transportation-in xx
--------------------------------- --------------------------------------------------------------
Merchandising Gross Purchases xx
Net Sales* xx - Purchases Return & Allowance (xx)
Less: Cost Goods Sold* (xx) - Purchase Discounts (xx)
---------------------------------------- ---------------------------------------------------------------
Gross Profit xx Net Purchases xx
Less: Operating Expense (xx) + Beginnning Inverntory xx
----------------------------------------- ----------------------------------------------------------------
Operating Income xx Cost of Goods Available for Sale (COGAS) xx
Other Income/Expense xx/(xx) - Ending Inventory (xx)
------------------------------------------ -----------------------------------------------------------------
Net Income xx Cost of Goods Sold (CGS) xx

Net Sales Cost of Sales / Cost of Goods Sold

Gross Sales xx - Largest single expense of the merchandising

business.
- Sales Returns & Allowance (SRA) (xx)
- Sales Discounts (xx) - Cost of inventory sold to customers.
Net Sales xx
Gross Sales
- Revenues from sale of merchandise are earned in
the accounting period in which the title of the
goods passes from the seller to the buyer.
- Gross Sales cosists of cash and credit sales.
Sales Returns and Allowances
- Sellers issue the customer a credit memorandum,
which is a formal acknowledgment that the seller
has reduced the amount owed.
Sales Return
- Return of merchandise from the buyer back to the
seller.
Sales Allowance
- Deduction from the selling price instead of
returning the merchandise.
Purchase Returns and Allowance MERCHANDISING OPERATIONS
- Recorded in a separate account because Terms of Transaction
management needs the information for decision 1) Trade Discounts
making.
- Discounts given to encourage the buyers to
Purchase Return purchase products because of markdowns from
- Return merchandise from the buyer back to the the list price.
seller. - List Price – Trade Discount = Invoice Price
Purchase Allowance
- Deduction from the selling price instead of
returning the merchandise.
Entries
Purchases xx
Cash / Accounts Payable xx
To record purchase of merchandise

Cash / Accounts Payable xx

Purchase Returns and Allowances xx
To record return of merchandise purchased
Operating Expenses
- Ordinary and necessary expenses in the day-to-day
running of operations of the business.
- Selling Expenses 2) Cash Discounts
o Directly related to the selling activities of the - Discount given to encourage prompt payment.
business.
- Based on the invoice price.
▪ E.g. delivery expense, advertising, salary
o Designated as “3/10, n/30”
and commission of sales personnel.
▪ Buyer may avail of 3& discount if paid
- General and Administrative Expenses
within 10 days from invoice date.
o Related to the administrative operations of
o The period covered by the cash discount is
the business.
referred to as the discount period.
▪ E.g. salary of the office personnel,
▪ Purchase discount – buyer’s POV
depreciation of office building,
depreciation of administrative vehicles. ▪ Sales discount – seller’s POV

Entries o Alternate credit terms.

Expense xx ▪ EOM – end of month
Cash / Accounts Payable xx o 2 ways to record cash discounts.
To record purchase of merchandise ▪ Gross Method
Other Income and Expenses ▪ Net Method
- Incidental transactions not part of the main
operations of the business.
 - Ownership over the goods passes from the
seller to the buyer when the inventory arrives
at the buyer’s place (Destination).

a) Purchase Discount
b) Sales Discount
3) Transaction Costs
- Freight bills
o Prepared by the carrier in accordance with
instructions of the party making the shipping
arrangements.
o Shows the shipping terms. (FOB Shipping
Point or FOB Destination) who incurs the
cost.
o Party to pay the cost. (Freight Prepaid or
Freight Collect) who pays.
- Transportation-in (Freight-in) FOB SP
o Shipping cost borne by the buyer using the
periodic inventory system.
o Added to cost of purchases for the period.
- Transportation-out (Delivery cost) FOB D
o Shipping cost borne by the seller. Selling
expenses.
a) FOB Shipping Point
- Ownership over the goods passes from the
seller to the buyer when the inventory leaves
the seller’s place (Shipping Point).
b) FOB Destination
MARK-UP vs. GROSS PROFIT MARGIN Compute for the selling price of the following:
Mark up Exercise A:
- Refers to the difference between the selling price A manufacturer sells a tent to its wholesalers for
of a good or service and its cost. P60.00. Wholesalers take a markup based on cost of
15% and sell to retailers who take a markup based on
- It is expressed as a percentage based on cost or
cost of 45%. How much does the tent cost if bought
based on sales.
from retailers?
Gross profit margin
Solution A:
- Refers to the difference between a products selling
price and its cost. ➢ Wholesale

- It is expressed as a percentage of revenue. Selling Price 69 115%

Less: Cost of Sale (60) 100%
Mark up based on sales ----------------------------------------------
Selling Price 1,000 100% Gross Profit 9 15%
----------------------------------------------
Less: Cost of Sale (800) 80%
---------------------------------------------- ➢ Retail
Mark up 200 20% Selling Price 100.05 145%
----------------------------------------------
Less: Cost of Sale (69) 100%
Mark up based on cost
----------------------------------------------
Selling Price 960 120% Gross Profit 31.05 45%
Less: Cost of Sale (800) 100% ----------------------------------------------
----------------------------------------------
Mark up 160 20% Exercise B:
----------------------------------------------
A manufacturer sells a tent to its wholesalers for
Gross profit margin P60.00. Wholesalers take a markup based on sales of
Selling Price 1,000 100% 15% and sell to retailers who take a markup based on
sales of 45%. How much does the tent cost if bought
Less: Cost of Sale (800) 80%
from retailers?
----------------------------------------------
Gross Profit 200 20% Solution B:
----------------------------------------------
➢ Wholesale
Selling Price 960 120% Selling Price 70.59 100%
Less: Cost of Sale (800) 83.33% Less: Cost of Sale (60) 85%
---------------------------------------------- ----------------------------------------------
Gross Profit 160 16.67% Gross Profit 10.59 15%
---------------------------------------------- ----------------------------------------------
➢ Retail
Selling Price 128.34 100%
Less: Cost of Sale (70.59) 55%
----------------------------------------------
Gross Profit 57.75 45%
----------------------------------------------
PERIODIC AND PERPETUAL INVENTORY SYSTMES Periodic vs Perpetual
Periodic - Assume that the Beginning Inventory is P250,000
- Used small value homogenous and voluminous - Assume that after the Physical Inventory Count,
transactions. Inventory on hand is P231,500
- E.g. grocery items
1) Sold merchandise on account costing P8,000 for
- Inventory counts are conducted at year-end to P10,000; terms 2/10, n/30
know the cost of ending inventory.
➢ Periodic
- Cost of goods sold is computed at the end of the
Accounts Receivable 10,000
period.
Sales 10,000
Perpetual
➢ Perpetual
- Used high value heterogenous and limited
transactions. Accounts Receivable 10,000

- E.g. cars, real estate, jewelry Sales 10,000

- Uses stock cards to monitor inventory levels Cost of Sales 8,000

throughout the year. Inventory 8,000
- Cost of goods sold is maintained in the General
2) Customer returned merchandise costing P400 that
Ledger.
had been sold on account for P500 (part of the
sale in #1)
➢ Periodic
Sales Return 500
AR 500
➢ Perpetual
Sales Return 500
AR 500
Inventory 8,000
Cost of Sales 8,000

3) Received payment from customer for

merchandise sold in #1
➢ Periodic
Cash 9,310
Sales Discount 190
AR 9,500
➢ Perpetual
Cash 9,310
Sales Discount 190
AR 9,500
4) Purchase on account merchandise for resale, 8) Transfer to CGS
P6,000 (2/10, n/30)
➢ Periodic
➢ Periodic
Purchase Discount 114
Purchases 6,000 Purchase Ret. 7 Allo. 300
Accounts Payable 6,000 Cost of Goods Sold 5,786
➢ Perpetual Purchases 6,000
Inventory 6,000 Freight-in 200
Accounts Payable 6,000 ➢ Perpetual
NO ENTRY
5) Paid P200 freight on the purchase in #4
➢ Periodic 9) To adjust perpetual records to actual count
Freight-in 200 ➢ Periodic
Cash 200 NO ENTRY
➢ Perpetual ➢ Perpetual
Inventory 200
Cost of Goods Sold 16,686
Cash 200
Inventory 16,686
6) Returned merchandise costing P300 from the
purchase in #4
➢ Periodic
Accounts Payable 300
Purchase Returns 300
➢ Perpetual
Accounts Payable 300
Inventory 300

7) Paid for merchandise purchased in #4

➢ Periodic
Accounts Payable 5,700
Purchase Discount 114
Cash 5,586
➢ Perpetual
Accounts Payable 5,700
Inventory 114
Cash 5,586