PERIODIC INVENTORY METHOD

Problem 1: Paul Dee registered his business PD Merchandising with DTI and started operation on May of the
current year. Below are the transactions of his business during the month of May.

Note: Amounts in Philippines Peso (₱)

May 3 Paul Dee invested 50,000 to start his merchandising business.
4 Purchased goods from ABC Marketing, list price 30,000, trade discount 20%, terms 2/10, n/20,
FOB Shipping Point, Freight Collect 1,200.
5 Purchased store equipment worth 45,000.
6 Sold merchandise for cash, 15,000.
8 Invested additional cash of 50,000 and delivery equipment worth 80,000.
9 Purchased merchandise for cash, 20,000.
12 Returned to ABC Marketing defective merchandise worth 500.
14 Paid ABC Marketing.
15 Paid salary, 1,500.
16 Issued a promissory note to LandBank for loan taken, 100,000.
16 Purchased supplies worth 900 on credit. (Use asset method)
17 Purchased goods for cash, 40,000.
18 Sold merchandise, 28,000, FOB Destination, term 2/10, n/eom.
20 Paid for freight for May 18 sales, 700.
22 Received cash 850 for defective merchandise purchased on May 9.
23 Sold merchandise, 12,000, FOB Shipping Point, terms 2/10, n/30. Freight of 200 was paid by Paul
Dee.
25 Paul Dee withdrew 2,000 for personal use.
28 Received partial payment for May 18 sales, 5,000.
30 Paid salary, 1,500.
31 Paid various expenses:
Utilities 400
Fuel Expense 800
Rent 2,500
31 Received defective merchandise on May 18 sales, 350.
31 Received full payment for May 23 sales.
31 Refunded the customer 650 for defective merchandise sold on May 6.
Ending inventory is 38,000.

Required:
1. Prepare Journal Entries
2. Post the Journal Entries to the Ledger
3. Prepare Trial Balance
4. Prepare Statement of Cost of Goods Sold
5. Prepare Income Statement
6. Prepare Statement of Changes in Owner’s Equity
7. Prepare Balance Sheet
8. Prepare Statement of Cash Flow
9. Prepare adjusting entry to set up ending inventory and closing entries.
10. Prepare Post-Closing Trial Balance
 CHART OF ACCOUNTS FOR JOURNALIZING TRANSACTION

100 ASSETS 400 REVENUE

101 Cash 401 Sales
103 Accounts Receivable 402 Sales Returns and Allowances
104 Supplies 403 Sales Discounts
115 Merchandise Inventory
121 Store Equipment 500 COST OF GOODS SOLD
123 Delivery Equipment 502 Purchases
503 Freight In
200 LIABILITIES 504 Purchase Returns and Allowances
211 Accounts Payable 505 Purchase Discounts
221 Notes Payable
600 OPERATING EXPENSES
300 EQUITY 604 Freight Out
301 P. Dee, Capital 607 Fuel Expense
302 P. Dee, Drawing 610 Salary Expense
303 Income Summary 612 Rent Expense
616 Utilities

CHART OF ACCOUNTS FOR PREPARATION OF FINANCIAL STATEMENTS

100 ASSETS 400 REVENUE

101 Cash and Cash Equivalents 401 Sales
103 Accounts Receivable 402 Sales Returns and Allowances
104 Supplies 403 Sales Discounts
115 Merchandise Inventory
121 Store Equipment 500 COST OF GOODS SOLD
123 Delivery Equipment 502 Purchases
503 Freight In
200 LIABILITIES 504 Purchase Returns and Allowances
211 Accounts Payable 505 Purchase Discounts
221 Notes Payable
600 OPERATING EXPENSES
300 EQUITY 604 Freight Out
301 P. Dee, Capital 607 Fuel Expense
302 P. Dee, Drawing 610 Salary Expense
303 Income Summary 612 Rent Expense
616 Utilities
General Journal
Page 1 (GJ-1)
ACCOUNT
20xx ACCOUNT TITLES & EXPLANATION NUMBER DEBIT CREDIT
May 03 Cash 101 50,000
P. Dee, Capital 301 50,000
To record investment of owner.
#
04 Purchases 502 24,000
Freight In 503 1,200
Accounts Payable 211 24,000
Cash 101 1,200
To record purchases from ABC Mktg., 2/10, n/20.
#
05 Store Equipment 121 45,000
Cash 101 45,000
To record purchase of store equipment.
#
06 Cash 101 15,000
Sales 401 15,000
To record cash sales.
#
08 Cash 101 50,000
Delivery Equipment 123 80,000
P. Dee, Capital 301 130,000
To record addition investment of owner.
#
09 Purchases 502 20,000
Cash 101 20,000
To record cash purchases.
#
12 Accounts Payable 211 500
Purchase Returns and Allowances 504 500
To record purchase returns to ABC Mktg.
#
14 Accounts Payable 211 23,500
Purchase Discount 505 470
Cash 101 23,030
To record full settlement of pay. to ABC Mktg. less discount
#
15 Salary Expense 610 1,500
Cash 101 1,500
To record payment of salary.
#
16 Cash 101 100,000
Notes Payable 221 100,000
To record cash loan from Land Bank, issued promissory note.
#
16 Supplies 104 900
Accounts Payable 211 900
To record purchase of supplies on credit.
#
17 Purchases 502 40,000
Cash 101 40,000
To record cash purchases.
General Journal
Page 2 (GJ-2)
ACCOUNT
20xx ACCOUNT TITLES & EXPLANATION NUMBER DEBIT CREDIT
May 18 Accounts Receivable 103 28,000
Sales 401 28,000
To record sales to customer, 2/10, n/eom.
#
20 Freight Out 604 700
Cash 101 700
To record payment of friend on May 18 sales.
#
22 Cash 101 850
Purchase Returns and Allowances 504 850
To record cash refund from supplier on May 9 purchases.
#
23 Accounts Receivable 103 12,200
Sales 401 12,000
Cash 101 200
To record sales, 2/10, n/30, freight prepaid 200.
#
25 P. Dee, Drawing 302 2,000
Cash 101 2,000
To record withdrawal of cash by the owner.
#
28 Cash 101 5,000
Accounts Receivable 103 5,000
To record partial collection of rec. from May 18 sales.
#
30 Salary Expense 610 1,500
Cash 101 1,500
To record payment of salary.
#
31 Fuel Expense 607 800
Rent Expense 612 2,500
Utilities 616 400
Cash 101 3,700
To record payment of fuel, rent, and utilities.
#
31 Sales Returns and Allowances 402 350
Accounts Receivable 103 350
To record sales returns on May 18 sales.
#
31 Cash 101 11,960
Sales Discounts 403 240
Accounts Receivable 103 12,200
To record collection of rec. from May 23 sales less discount.
#
31 Sales Returns and Allowances 402 650
Cash 101 650
To record cash refund to customer on May 6 sales.
 GENERAL LEDGER
Account Number: 101 Account Name: CASH
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 03 Investment GJ-1 50,000 50,000
04 Freight In GJ-1 1,200 48,800
05 Store Equipment GJ-1 45,000 3,800
06 Sales GJ-1 15,000 18,800
08 Additional investment GJ-1 50,000 68,800
09 Purchases GJ-1 20,000 48,800
14 Payment – ABC GJ-1 23,030 25,770
15 Salary GJ-1 1,500 24,270
16 Loan – Land Bank GJ-1 100,000 124,270
17 Purchases GJ-1 40,000 84,270
20 Freight Out GJ-2 700 83,570
22 Refund from supplier GJ-2 850 84,420
23 Freight prepaid GJ-2 200 84,220
25 Withdrawal GJ-2 2,000 82,220
28 Collection – May 18 sales GJ-2 5,000 87,220
30 Salary GJ-2 1,500 85,720
31 Fuel, Rent, and Utilities GJ-2 3,700 82,020
31 Collection – May 23 sales GJ-2 11,960 93,980
31 Refund to customer GJ-2 650 93,330

GENERAL LEDGER
Account Number: 103 Account Name: ACCOUNTS RECEIVABLE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 18 Sales – 2/10, n/eom GJ-2 28,000 28,000
23 Sales – 2/10, n/30, and Freight prepaid, 200 GJ-2 12,200 40,200
28 Collection – May 18 sales GJ-2 5,000 35,200
31 Sales returns – May 18 sales GJ-2 350 34,850
31 Collection – May 23 sales GJ-2 12,200 22,650

GENERAL LEDGER
Account Number: 104 Account Name: SUPPLIES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 16 Credit GJ-1 900 900

GENERAL LEDGER
Account Number: 115 Account Name: MERCHANDISE INVENTORY
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Establishment GJ-3 38,000 38,000

GENERAL LEDGER
Account Number: 121 Account Name: STORE EQUIPMENT
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 05 Cash GJ-1 45,000 45,000
 GENERAL LEDGER
Account Number: 123 Account Name: DELIVERY EQUIPMENT
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 08 Additional investment GJ-1 80,000 80,000

GENERAL LEDGER
Account Number: 211 Account Name: ACCOUNTS PAYABLE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 04 ABC Mktg. – 2/10, n/20 GJ-1 24,000 24,000
12 Purchase returns - ABC GJ-1 500 23,500
14 Payment – ABC GJ-1 23,500 0
16 Supplies GJ-1 900 900

GENERAL LEDGER
Account Number: 221 Account Name: NOTES PAYABLE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 16 Cash Loan – Land Bank GJ-1 100,000 100,000

GENERAL LEDGER
Account Number: 301 Account Name: P. DEE, CAPITAL
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 03 Cash GJ-1 50,000 50,000
08 Cash and Delivery equipment GJ-1 130,000 180,000
31 Income summary GJ-3 980 180,980
31 Drawing GJ-3 2,000 178,980

GENERAL LEDGER
Account Number: 302 Account Name: P. DEE, DRAWING
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 25 Cash GJ-2 2,000 2,000
31 Closing GJ-3 2,000 0

GENERAL LEDGER
Account Number: 303 Account Name: INCOME SUMMARY
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Sales GJ-3 53,760 53,760
31 Merchandise inventory and Purchases GJ-3 45,380 8,380
31 Expense GJ-3 7,900 980
31 Closing GJ-3 980 0
 GENERAL LEDGER
Account Number: 401 Account Name: SALES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 06 Cash GJ-1 15,000 15,000
18 Credit GJ-2 28,000 43,000
23 Credit GJ-2 12,000 55,000
31 Closing GJ-3 55,000 0

GENERAL LEDGER
Account Number: 402 Account Name: SALES RETURNS AND ALLOWANCES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 May 18 sales GJ-2 350 350
31 May 6 sales GJ-2 650 1,000
31 Closing GJ-3 1,000 0

GENERAL LEDGER
Account Number: 403 Account Name: SALES DISCOUNTS
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 May 23 sales GJ-2 240 240
31 Closing GJ-3 240 0

GENERAL LEDGER
Account Number: 502 Account Name: PURCHASES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 04 Credit GJ-1 24,000 24,000
09 Cash GJ-1 20,000 44,000
17 Cash GJ-1 40,000 84,000
31 Closing GJ-3 84,000 0

GENERAL LEDGER
Account Number: 503 Account Name: FREIGHT IN
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 04 Cash GJ-1 1,200 1,200
31 Closing GJ-3 1,200 0

GENERAL LEDGER
Account Number: 504 Account Name: PURCHASE RETURNS AND ALLOWANCES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 12 Credit – ABC Mktg. GJ-1 500 500
22 Cash – May 9 purchases GJ-2 850 1,350
31 Closing GJ-3 1,350 0
 GENERAL LEDGER
Account Number: 505 Account Name: PURCHASE DISCOUNTS
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 14 ABC Mktg. GJ-1 470 470
31 Closing GJ-3 470 0

GENERAL LEDGER
Account Number: 604 Account Name: FREIGHT OUT
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 20 Cash GJ-2 700 700
31 Closing GJ-3 700 0

GENERAL LEDGER
Account Number: 607 Account Name: FUEL EXPENSE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Cash GJ-2 800 800
31 Closing GJ-3 800 0

GENERAL LEDGER
Account Number: 610 Account Name: SALARY EXPENSE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 15 Cash GJ-1 1,500 1,500
30 Cash GJ-2 1,500 3,000
31 Closing GJ-3 3,000 0

GENERAL LEDGER
Account Number: 612 Account Name: RENT EXPENSE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Cash GJ-2 2,500 2,500
31 Closing GJ-3 2,500 0

GENERAL LEDGER
Account Number: 615 Account Name: UTILITIES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Cash GJ-2 400 400
31 Closing GJ-3 400 0
 PD MERCHANDISING
TRIAL BALANCE (UNADJUSTED)
MAY 31, 20XX

ACCOUNT
NUMBER ACCOUNT NAME DEBIT CREDIT
101 Cash 93,330
103 Accounts Receivable 22,650
104 Supplies 900
121 Store Equipment 45,000
123 Delivery Equipment 80,000
211 Accounts Payable 900
221 Notes Payable 100,000
301 P. Dee, Capital 180,000
302 P. Dee, Drawing 2,000
401 Sales 55,000
402 Sales Returns and Allowances 1,000
403 Sales Discounts 240
502 Purchases 84,000
503 Freight In 1,200
504 Purchase Returns and Allowances 1,350
505 Purchase Discounts 470
604 Freight Out 700
607 Fuel Expense 800
610 Salary Expense 3,000
612 Rent Expense 2,500
615 Utilities 400
TOTALS 337,720 337,720

NOTE: Amounts are based on ledger balances before closing the accounts.

PD MERCHANDISING
STATEMENT OF COST OF GOODS SOLD
MAY 31, 20XX

Merchandise Inventory, Beg. 0

Add: Purchases 84,000
Less: Purchase Returns and Allowances 1,350
Purchase Discounts 470
Total 82,180
Add: Freight In 1,200
Net Cost of Purchases 83,380
Goods Available for Sale 83,380
Less: Merchandise Inventory, End. 38,000
Cost of Goods Sold 45,380
 PD MERCHANDISING
INCOME STATEMENT
MAY 31, 20XX

Sales 55,000
Less: Sales Returns and Allowances 1,000
Sales Discounts 240 1,240
Net Sales 53,760
Less: Cost of Goods Sold 45,380
Gross Profit 8,380
Less: Operating Expenses:
Freight Out 700
Fuel Expense 800
Salary Expense 3,000
Rent Expense 2,500
Utilities 400
Total Operating Expenses 7,400
Net Profit 980

PD MERCHANDISING
STATEMENT OF CHANGES IN OWNER’S EQUITY
MAY 31, 20XX

P. Dee, Capital, Beg. 0

Add: Investment 180,000
Less: Withdrawal 2,000
Net Capital 178,000
Add: Net Profit 980
P. Dee, Capital, End. 178,980
or
P. Dee, Capital, Beg. 0
Add: Investment 180,000
Less: Withdrawal 2,000
Add: Net Profit 980
P. Dee, Capital, End. 178,980
 PD MERCHANDISING
BALANCE SHEET
MAY 31, 20XX

ASSETS
Current Assets:
Cash and Cash Equivalents 93,330
Accounts Receivable 22,650
Supplies 900
Merchandise Inventory 38,000
Total Current Assets 154,880
Non-Current Assets:
Store Equipment 45,000
Delivery Equipment 80,000
Total Non-Current Assets 125,000
Total Assets 279,880

LIABILITIES AND OWNER’S EQUITY

Current Liabilities:
Accounts Payable 900
Total Current Liabilities 900
Non-Current Liabilities:
Notes Payable 100,000
Total Non-Current Liabilities 100,000
Total Liabilities 100,900
Owner’s Equity
P. Dee, Capital 178,980
Total Owner’s Equity 178,980
Total Liabilities and Owner’s Equity 279,880

NOTE: Amounts are based on ledger balances after closing the accounts.
 PD MERCHANDISING
STATEMENT OF CASH FLOW
MAY 31, 20XX

Cash Flow from Operating Activities:

Cash Received from:
Cash Sales 15,000
Receivables (Collected) 16,960
Refund from Supplier (Purchase Returns and Allowances - Cash) 850
Cash Payment to:
Goods bought (Paid purchases) (83,303)
Freight on Purchases (Freight In) (1,200)
Freight on Sales (Freight Out) (700)
Freight Payment (Freight Prepaid) (200)
Refund to Customers (Sales Returns and Allowances - Cash) (650)
Operating Expenses (Excluding Freight Out) (6,700)
Net Cash Flow from Operating Activities: (39,670)

Cash Flow from Investing Activities:

Purchase of Store Equipment (45,000)
Net Cash Flow from Investing Activities (45,000)

Cash Flow from Financing Activities:

Investment (Cash only) 100,000
Borrowing (Bank loans) 100,000
Drawing (Cash only) (2,000)
Net Cash Flow from Financing Activities 198,000

Net Increase/Decrease in Cash for the Period 93,330

Add: Cash Balance, Beg. 0
Cash Balance, End. 93,330

NOTE: Refer to CASH ledger.

General Journal
Page 3 (GJ-3) Closing Entries
ACCOUNT
20xx ACCOUNT TITLES & EXPLANATION NUMBER DEBIT CREDIT
May 31 Sales 401 55,000
Sales Returns and Allowances 402 1,000
Sales Discounts 403 240
Income Summary 303 53,760
To close sales account to Income Summary.
#
31 Merchandise Inventory 115 38,000
Income Summary 303 45,380
Purchase Returns and Allowances 504 1,350
Purchase Discounts 505 470
Purchases 502 84,000
Freight In 503 1,200
To establish merch. inv. & to close purchases account to Income Summary.
#
31 Income Summary 303 7,400
Freight Out 604 700
Fuel Expense 607 800
Salary Expense 610 3,000
Rent Expense 612 2,500
Utilities 615 400
To close expense account to Income Summary.
#
31 Income Summary 303 980
P. Dee, Capital 301 980
To close Income Summary account to capital account.
#
31 P. Dee, Capital 301 2,000
P. Dee, Drawing 302 2,000
To close drawing account to capital account.
#

PD MERCHANDISING
POST-CLOSING TRIAL BALANCE
MAY 31, 20XX

ACCOUNT
NUMBER ACCOUNT NAME DEBIT CREDIT
101 Cash 93,330
103 Accounts Receivable 22,650
104 Supplies 900
115 Merchandise Inventory 38,000
121 Store Equipment 45,000
123 Delivery Equipment 80,000
211 Accounts Payable 900
221 Notes Payable 100,000
301 P. Dee, Capital 178,980
TOTALS 279,880 279,880

NOTE: Amounts are based on ledger balances after closing the accounts.

Problem 2: Adjusting Entries (3 cases, 4 points each case) Study na lang ang mga adjusting entries:
a. Accrual of Income: Income Method and Liability Method (Original Entry Assumption: Income Method)
b. Accrual of Expense: Expense Method and Asset Method (Original Entry Assumption: Asset Method)
GOD BLESS AND GOOD LUCK!