Fabm1 Grade-11 Qtr4 Module5 Week-5

FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT 1

MODULE
Module No. 5: Week 5: Second Quarter
ADJUSTING AND CLOSING ENTRIES FOR MERCHANDING BUSINESS
Learning Competencies
1. Prepares adjusting entries
2. completes the accounting cycle of a merchandising business
Code: ABM_FABM11-IVe-j -39; ABM_FABM11- IVe-j -40
Objective
After reading this module, the learners will be able to:
1. prepare adjusting entries for a merchandising business.
2. prepare adjusted trial balance for a merchandising business.
3. prepare income statement and balance sheet
4. prepare closing entries for a merchandising business.
Let’s Recall
Classify the following items as to:
A. Prepaid Expense B. Unearned Revenue

C. Accrued Expense D. Accrued Revenue
1. A two-year premium paid on a fire insurance policy.

2. Advertising paid in advance for 2 months.
3. Interest collected in advance by the creditor
4. Interest owed but payable in the following period.
5. Interest paid in advance form a bank loan
Let’s Understand
I hope you can still recall our lesson about adjusting entries. On the previous module, we
focused the adjusting of entries for a service business. Well, if you can understand and apply the concept from
previous activities, this module will be easy for you. Remember! The process of adjusting entries for both service
and merchandising business are just the SAME.
Adjusting entries are entries that are prepared to generate
correct data at the end of the accounting period. Also, it is
done to be able to depict sensible financial statements.
Below is the unadjusted trial balance of WTY Furniture
Store.
The following information was identified on December 31,

2019.
a. Of the total accounts receivable, P25,000 is doubtful of
collection.
b. Salaries earned by employees during the period but were
not yet paid amounted to P8,000.
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The adjusting entry to recognize the P25,000 uncollectible account is as follows:
Let us use the Allowance Method
Date Particulars Debit Credit

*****Adjusting Entries********
2019 31 Bad debts Expense P25,000-
Dec
Allowance for Bad debts P25,000-
To record bad debts expense for the period.
The “Allowance for Bad debts or Allowance for Doubtful Accounts” is a contra asset account and is reported on
the statement of financial position as deduction from Accounts Receivable.
The carrying amount of accounts receivable on December 31,2019 is determined as follows:
Accounts Receivables P495,000-
Allowance for Bad debts (25,000-)
Account receivable-net P470,000-
The P8,000 unpaid salaries are accrued as follows:

*****Adjusting Entries********
2019 31 Salaries Expense P10,000-
Dec
Salaries payable P10,000-
To record the accrue salaries expense
incurred but not yet paid
Note: The recording of adjusting entries can be done on the general journal. All the changes made during adjusting
of entries will reflect on the general ledger and adjusted trial balance.
General Ledger:
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Note: For adjusting of entries, the date indicated during the recording and posting process is the last date of the
month. In the case of Mrs. Ty, WTY Furniture Store, the date of the adjusting entries in the general journal and
ledger is on December 31, 2019.
Preparing the Adjusted Trial Balance
Always remember to write the heading first at the top center of t he

page – (first line - name of the company; second line – title of report;
third line – date of the report). Also, always follow the proper order
in preparing the trial balance: (1-asset, 2-liabilities, 3-equity, 4-
revenue/income, and 5-expenses). Now, let us prepare the adjusted
trial balance.
Closing entries are journal entries that bring temporary

accounts to zero balance and transfer their balances to the
permanent account at the end of the accounting period.
Let us have a quick review of Closing entries using

Income summary method. Please note, that the closing of
entries in the service business is just the same as the merchandising business.
How do we close temporary accounts?
1. Closing the revenue account(s)

****Closing Entries*******
2019 31 Sales P870,000-
Dec
Income Summary P870,000-
To close revenue account
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Remember! Sales returns
2019 31 Income Summary P25,000- and allowances is a contra-
Dec revenue account.
Sales returns and allowances P25,000-
To close sales returns account
2. Closing the expense accounts

****Closing Entries******* This is the total amount of
2019 31 Income Summary P675,000- all the expense account.
Dec
Cost of goods sold P632,000-
Salaries Expense 18,000-
Bad debts Expense 25,000-
To close expense accounts
3. Closing the income summary account. Why do we need to close the income summary account?
Because it is a temporary account.
If Revenue is greater than Expenses = NET INCOME If Expense is greater than Revenue = NET LOSS
Which of the
two will you
be using to
close the
Income summary?
To identify income summary ending balance, calculate the difference of the amount of income summary account
from the closing entries of revenue and expenses.
Particulars Debit Credit Balance

Income summary from closing the
P870,000- P870,000- Income summary ending
Sales account
Balance
P25,000- 845,000-
Sales returns and allowances
675,000- P170,000-
Expense account
*Revenue is greater than expense. Therefore, WTY Furniture store has a NET INCOME.

2019 31 Income Summary P170,000-
Dec
M. Ty, Capital P170,000-
To close income summary
account
Note: The recording of closing entries can be done on the general journal. All the changes made during closing
of entries will reflect on the general ledger and post-closing trial balance.
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Note: We will close all the nominal accounts – income and expenses, (i.e., those that are highlighted
above).
Preparing the Post-Closing Trial Balance
WTY FURNITURE STORE

Post-closing Trial Balance
For the month ended December 31, 2019
Accounts Debit Credit
Cash P 992,000-
Accounts Receivable 495,000-
Merchandise Inventory 720,000-
Allowance for Bad debts P 25,000-
Accounts Payable 502,000-
Salaries Payable 10,000-
M. Ty, Capital 1,670,000-
Income Summary -
Sales -
Sales Returns and Allowances -
Cost of goods sold -
Salaries Expense -
Bad debts Expense -
Total P2,207,000- P2,207,000-
Notice that we use a dash to represent zero amount of the temporary accounts.
GENERAL INSTRUCTION:
1.Read and follow instructions carefully.
2. COPY and ANSWER on a separate sheet of paper.
3. Answer this activity with all HONESTY and INTEGRITY.
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Let’s Apply
Activity 1: TRUE or FALSE: Write True if the statement is correct and False if the statement is
incorrect.
1. Companies do not prepare interim financial statements.
2. The accounting period usually covers a span of 12 months
3. Asset method debit the payment to an expense account
4. Office supplies purchased is an example of prepaid expense
5. Expense method initially debits the payment to an asset account.
Let’s Analyze
Prepare adjusting entries of TY Merchandising on June 30, 2018, the end of the annual
accounting period, based on the following independent data. Use the description part to
show the computation of each entry. Round off your answers to the nearest
HUNDREDTHS if NECESSARY. Use all the methods of adjusting entries.
1. An advance payment for a 3-year insurance was made on July 1, 2017 for P225, 000.
2. Received an advance payment for P54,000 from their tenant, representing 9-month rent on November 1,
2017.
3. Bought a total amount of P123,000 office supplies on January 1, 2018. P 78,000 worth of supplies was
consumed at the end of the accounting period.
4. Collected an advance payment for merchandise worth P300, 000 of which 30% has been earned at the end
of the accounting period.
Use the following account titles and numbers below:

Account Account title Account number Account title
number
102 Office Supplies 401 Rent Income
104 Prepaid Insurance 402 Sales
204 Unearned Rent 501 Insurance Expense
205 Unearned Service Income 502 Supplies Expense
Let’s Try
Read and answer each statement/problem carefully.
1. Preparing adjusting entries for CAI’S GENERAL MERCHANDISE (refer to Module 4)

using the following:
a. A premium o f P12,000 for a one-year insurance policy was paid on January 1, 2020 and debited to Prepaid
Insurance.
b. the total accounts receivable, P15,000 is doubtful of collection.
c. Salaries earned by employees during the period but were not yet paid amounted to P17,000.
2. Post the transactions of the adjusting entries using the general ledger.
3. Prepare the adjusted Trial balance.
4. Prepare the Worksheet that includes income statement and balance sheet.
5. Perform closing entries
6. Post the changes in the general ledger.
7. Prepare the Post-Closing trial balance.
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FUNDAMENTALS OF ACCOUNTANCY,

BUSINESS AND MANAGEMENT 1

A. Prepaid Expense B. Unearned Revenue

1. A two-year premium paid on a fire insurance policy.

The following information was identified on December 31,

Date Particulars Debit Credit

Date Particulars Debit Credit

Preparing the Adjusted Trial Balance

Always remember to write the heading first at the top center of t he

Closing entries are journal entries that bring temporary

Let us have a quick review of Closing entries using

How do we close temporary accounts?

1. Closing the revenue account(s)

Date Particulars Debit Credit

2. Closing the expense accounts

Date Particulars Debit Credit

Particulars Debit Credit Balance

Date Particulars Debit Credit

WTY FURNITURE STORE

Use the following account titles and numbers below:

1. Preparing adjusting entries for CAI’S GENERAL MERCHANDISE (refer to Module 4)

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