Fundamentals of Accountancy, Business and

Management 1
Module 14:
Accounting Cycle of a Merchandising Business

I
 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 – prepares a trial balance

After going through this module, you are expected to:

1. define trial balance;
2. prepare a trial balance of a merchandising business; and
3. give the importance of trial balance
 What I Know

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

1. An accounting cycle is a series of recurring steps that has usually the fourth
step of __________.
a. analyzing business transactions from source documents
b. journalizing business transactions
c. preparing chart of accounts
d. preparing a trial balance

2. Which of the following is NOT included in the columns of a trial balance?

a. Adjusting entries
b. Account title
c. Debit balance
d. Credit balance

3. If the trial balance does not balance, what would the accountant least likely to do?
a. Record gain or loss on balancing to bring the columns.
b. Check if an amount for P10,101 was recorded as P10,110.
c. Double-check the signs of the balances and the placement in the columns.
d. Consult the ledger and make sure that all accounts with balances have been
reflected.

4. If the trial balance does not balance, what would the accountant least likely do?
a. Check the journal entries.
b. Recompute the totals
c. Confirm that all figures use the same grouping
d. Get the difference between total debits and credits.

5. Statement 1: A trial balance is usually prepared before journalizing and posting

have been made.
Statement 2: A trial balance is prepared to check the equality of debits and
credits.
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
Preparing the Trial Balance
1 of a Merchandising Business

To prepare the trial balance, account balances from the general ledger
are copied and arranged in financial statements order or based on account
number. This is the fourth step in the accounting cycle of a merchandising
business.

What’s In

Fact or Bluff. Write FACT if the statement is true and BLUFF if otherwise.

_______ 1. A trial balance is usually prepared before journalizing and

posting have been made.

_______ 2. A trial balance is prepared to check the equality of debits and

credits.

_______ 3. To prepare a trial balance, account balances from the ledger

are copied and arranged in financial statements order or
based on account number.

_______ 4. The trial balance does not mean that the report is free from
errors because an incorrect analysis may still result to
balanced trial balance.

_______ 5. The trial balance normally includes columns for the journal
entries, account number, account name, debit balance and
credit balance.
 What’s New

Directions: Read and answer the following questions:

Recall that in the previous module, journal entries are summarized

into their respective ledger accounts. Now, as the business owner of
#WeHealAsOne Drugstore, how will you ensure that all entries made into
the general ledger are properly balanced?

Questions:
1. How will a business owner check if the totality of debit and credit
balances is equal?

2. If the debit and credit balances did not tally, what may be the possible
reason/s for this?
 What is It

Trial Balance/Unadjusted Trial Balance – is a listing of general ledger

accounts together with their respective debit and credit balances. Thus, it
provides evidence that total debits = total credits. Below is the illustration
from general ledger to trial balance.

GENERAL LEDGER

Accounts Receivable 102

Date Explanation Ref Dr Date Explanation Ref Cr
Jan.3 To record sold GJ1 xx
merchandise from
CDE on account
Balance xx

Accounts Payable 201

Date Explanation Ref Dr Date Explanation Ref Cr
Jan.1 To record GJ1 xx
purchased
merchandise
from ABC on
account
Balance xx

Sales 401
Date Explanation Ref Dr Date Explanation Ref Cr
Jan.3 To record sold GJ1 xx
merchandise
from CDE on
account
Balance xx

Purchases 501
Date Explanation Ref Dr Date Explanation Ref Cr
Jan.1 To record xx
purchased
merchandise from
ABC on account
Balance xx
TRIAL BALANCE/ UNDJUSTED TRIAL BALANCE

(Business Name)
Unadjusted Trial Balance
(Date)
Account Number Account Title Dr Cr
102 Accounts Receivable xx
201 Accounts Payable xx
401 Sales xx
501 Purchases xx
Total: xx xx

What’s More

Directions: Prepare the unadjusted trial balance of #LearnAsOne

Bookstore.
Cash 101
Date Explanation Ref Dr Date Explanation Ref Cr
Feb5 To record GJ1 2,000 Feb1 To record GJ1 30,000
returned purchased
merchandise of merchandise
Beng Book from Beng Book
Feb20 To record GJ1 15,000
collected
remaining
balance of
School Office
Supplies
17,000 30,000
Balance 13,000

Accounts Receivable 201

Date Explanation Ref Dr Date Explanation Ref Cr
Feb15 To record sold GJ1 20,000 Feb18 To record GJ1 5,000
merchandise to returned
School Office merchandise of
Supplies School Office
Supplies
Feb20 To record GJ1 15,000
collected
remaining
balance of
School Office
Supplies
20,000 20,000
 Balance 0

Sales 401
Date Explanation Ref Dr Date Explanation Ref Cr
Feb15 To record sold GJ1 20,000
merchandise to
School Office
Supplies
Balance 20,000

Sales Returns and Allowances 402

Date Explanation Ref Dr Date Explanation Ref Cr
Feb18 To record GJ1 5,000
returned
merchandise of
School Office
Supplies
Balance 5,000

Purchases 501
Date Explanation Ref Dr Date Explanation Ref Cr
Feb1 To record GJ1 30,000
purchased
merchandise
from Beng Book
Balance 30,000

Purchase Returns and Allowances 502

Date Explanation Ref Dr Date Explanation Ref Cr
Feb5 To record GJ1 2,000
returned
merchandise of
Beng Book
Balance 2,000
 What I Have Learned

Exit Slip: 3,2,1

3 >>> Name three things you learned in Trial Balance today:

2 >>> List two things you want to learn more about:

1 >>> Ask one queation about today’s lesson:

What I Can Do

Directions: Answer the following questions.

1. How do you prepare a trial balance?
 2. What is the importance of trial balance?

Rubrics for Essay:

Content Organization Conventions
3 points Substantial, specific, Sophisticated Evident control of
and/or illustrative arrangement of grammar,
content demonstrating content with evident mechanics, spelling,
strong development and and/or subtle usage and sentence
sophisticated ideas. transitions. formation.

2 points Sufficiently developed Functional Sufficient control of

content with adequate arrangement of grammar,
elaboration or content that sustains mechanics, spelling,
explanation. a logical order with usage and sentence
some evidence of formation.
transitions.
1 point Limited content with Confused or Limited control of
inadequate elaboration inconsistent grammar,
or explanation. arrangement of mechanics, spelling,
content with or usage and sentence
without attempts at formation.
transition.
 Assessment

I. Directions: Prepare the unadjusted trial balance of #KayaKoTo

Computer Store owned by Mr. Malakas Ko based from the ending
balances in the general ledger.

Cash 101
Date Explanation Ref Dr Date Explanation Ref Cr
Dec 1 To record P300,000 Dec 2 To record P20,000
investment purchased
office
equipment
12 To record sold 20,000 3 To record 2,000
one unit for freight costs
cash to Marie for the
Cruz purchase of 10
units of
computers
23 To record 19,400 4 To record 2,000
received full purchased
payment from office supplies
Ms. Reyes.
9 To record full 88,200
payment to
Maliksi
Company
27 To record 5,000
withdrew cash
for personal
use
30 To record 7,000
payment of
various
expenses
339,400 124,200
Balance 215,200

Accounts Receivable 102

Date Explanation Ref Dr Date Explanation Ref Cr
Dec15 To record sold 40,000 Dec17 To record 20,000
two units on returned one
account to Ms. unit of
Reyes computer
23 To record 20,000
received full
payment from
Ms. Reyes
40,000 40,000
 Balance 0
Office Supplies 103
Dec4 To record 2,000
purchased
office supplies
Balance 2,000
Office Equipment 104
Dec2 To record 20,000
purchased
office
equipment
Balance 20,000
Accounts Payable 201
Dec7 To record 10,000 Dec3 To record 100,000
returned one purchased 10
damaged units of
computer computers on
account from
Maliksi
Company
Dec9 To record full 90,000
payment to
Maliksi
Company
100,000 100,000
Balance 0
Ko, Capital 301
Date Explanation Ref Dr Date Explanation Ref Cr
Dec1 To record 300,000
investment

Ko, Drawing 302

Date Explanation Ref Dr Date Explanation Ref Cr
Dec27 To record 5,000
withdrew cash
for personal
use
Balance 5,000
Sales 401
Date Explanation Ref Dr Date Explanation Ref Cr
Dec12 To record sold 20,000
one unit for
cash to Marie
Cruz
15 To record sold 40,000
two units on
account to Ms.
Reyes
Balance 60,000
Sales Returns and Allowances 402
Date Explanation Ref Dr Date Explanation Ref Cr
Dec17 To record 20,000
 returned one
unit of
computer
Balance 20,000
Sales Discount 403
Date Explanation Ref Dr Date Explanation Ref Cr
Dec23 To record 600
received full
payment from
Ms. Reyes
Balance 600
Purchases 501
Date Explanation Ref Dr Date Explanation Ref Cr
Dec23 To record 100,000
purchased 10
units of
computers on
account from
Maliksi
Company
Balance 100,000
Purchase Returns and Allowances 502
Date Explanation Ref Dr Date Explanation Ref Cr
Dec7 To record 10,000
returned one
damaged
computer
10,000
Purchase Discount 503
Date Explanation Ref Dr Date Explanation Ref Cr
Dec9 To record full 1,800
payment to
Maliksi
Company
Balance 1,800
Freight-In 504
Date Explanation Ref Dr Date Explanation Ref Cr
Dec3 To record 2,000
freight costs
for the
purchase of 10
units of
computers
Balance 2,000
Rent Expense 505
Date Explanation Ref Dr Date Explanation Ref Cr
Dec30 To record 3,000
payment of
various
expenses
Balance 3,000
Utilities Expense 506
Date Explanation Ref Dr Date Explanation Ref Cr
Dec30 To record 2,000
payment of
various
expenses
Balance 2,000
Salaries Expenses 507
Date Explanation Ref Dr Date Explanation Ref Cr
Dec30 To record 2,000
payment of
various
expenses
Balance 2,000

Additional Activities

Directions: Identify the errors and prepare the correct trial balance of #Laging
Handa Hardware.
Laging Handa Hardware
Unadjusted Trial Balance
December 31, 20xx
Account Number Account Title Dr Cr
101 Cash P150,000
102 Accounts Receivable 78,000
103 Prepaid Insurance 10,000
104 Store Equipment 30,000
201 Accounts Payable P25,000
301 Ko, Capital 250,000
401 Sales 100,000
402 Sales Returns and Allowances 15,000
403 Sales Discount 1,000
501 Purchases 80,000
502 Purchase Returns and Allowances 5,000
503 Purchase Discount 3,000
504 Wages Expense 10,000
505 Rent Expense 5,000
506 Telephone Expense 1,000
507 Miscellaneous Expense 3,000
Total: P362,000 P404,000