B.

Sales Return and Allowances – buyers may return goods to sellers for credit if the sale
was made on account or for cash refund if the sale was for cash. Debit.
May 18 Sales returns and allowances 2,500
Accounts receivable (or cash) 2,500
To record return or allowance on unsatisfactory merchandise
3. Transportation
FOB Shipping Point – ownership or title in the merchandise will pass to the BUYER at
the point of transit or shipping; buyer will incur the loss.
FOB Destination Point – ownership or title in the merchandise will only be pass to the
BUYER at the when receives the merchandise or goods purchased; seller will incur the
loss.
Freight Prepaid is when the seller pays the transportation costs before the shipping of
the goods sold.
Freight Collect is when the entity collects the freight fee from the buyer.
4. Inventory (merchandising inventory) are the goods that a merchandising company sells to its
customers.
PERIODIC AND PERPETUAL INVETORY
A. Perpetual Inventory System – Inventory account is continuously updated.
- Time of purchase, the merchandise inventory is debited.
- Is a detailed records of the cost of each item are maintained, and the cost of each item
is sold is determined from records when the sale occurs.
B. Periodic Inventory System – no continuous record of the movement of the physical
quantities of inventory on hand. No entries made to the inventory account as the merchandise is
bought and sold.
- Uses an occasional physical count to measure the level of inventory and the cost of
goods sold.
- When goods are purchased, a separate set of accounts (purchases, purchase discounts,
purchase return and allowances, and transportation) is used to accumulate information
on the net cost of the purchases.
- Only at the end of the period, when the inventory is counted.
Perpetual Periodic
Purchase Merchandise Inventory Purchases
Cash/Accounts Payable Cash/Accounts Payable
Return Accounts Payable Accounts Payable
Merchandise Inventory Purchase Return &
Allowances
Sale Cash/Accounts Receivable Cash/Accounts Receivable
Sales Sales

Cost of Goods Sold

Merchandise Inventory
FORMULAS
Cost of Goods Sold: Net Purchases
Beginning Inventory xx Add: Freight-In xx
Add: Net Purchases xx Less: Purchase Return xx
Total Goods Available for Sale xx Less: Purchase Discounts xx
Less: Ending Inventory xx Less: Purchase Allowances xx
Cost of Goods Sold xx Net Sales xx
Net Sales: Gross Invoice Price
Sales xx List Price – Trade Discount
 Less: Sales Allowance xx
Less: Sales Discount xx
Less Sales Return xx
Net sales xx
MERCHANDISING INCOME STATEMENT
Net Sales xx
Less: Cost of Goods Sold xx
Gross Profit xx
Add: Other Income xx
Total Revenue xx
Less: Operating Expenses xx
Net Income xx

CHAPTER 09: SPECIAL AND COMBINATION JOURNALS, AND VOUCHER SYSTEM

Journal Specific Transactions recorded Position Abbreviation
Sales Journal Sales of merchandise on account S
Cash Receipts Journal Receipts of cash CR
Purchases Journal Purchases on account P
Cash disbursements Payment of cash CD
Journal
General Journal Entries that are not in the other/special GJ
journal

CHAPTER 10: MANUFACTURING OPERATIONS

Merchandising buys products that are ready for resale, while manufacturing buys raw materials
and processes them into finished goods.
ELEMENTS OF MANUFACTURING COSTS
Manufacturing Costs includes all costs related to the production process; they are classified into
three categories.
1. Direct Materials are materials that become a physical part of a finished good.
2. Direct Labor are the compensation of employees or workers who physically convert raw
materials into finished goods. These includes the wages of the employees.
3. Manufacturing Overhead includes all manufacturing costs that cannot be classified as direct
materials or direct labor. Major classifications:
a. Indirect material and supplies. Glue, thread, nails, lubricants, etc.
b. Indirect labor cost. Salaries of plant managers and engineers.
c. Other indirect manufacturing costs. Includes building, machinery and tools
maintenance, property taxes/insurance, rent expenses and depreciation on property.
Prime Costs Conversion Costs
Direct Materials Direct Labor Manufacturing Overhead
PRODUCT COST VS PERIOD COST
1. Product Cost is an inventoriable cost a subject to allocation between sold units. (expense –
cost of goods sold) and unsold units (asset – inventory).
2. Period Cost (Fixed Expense) is a cost that is charged as fully expense in the period incurred,
regardless of sale performance.
MANUFACTURING INVENTORY ACCOUNT
1. Finished Goods Inventory. The cost of completed goods that remained unsold at the end of
the accounting period.
2. Work in Process Inventory. The cost of the goods that are in the manufacturing process but
are not yet complete at the end of the accounting period.
3. Raw Materials inventory. Holds the cost direct materials on hand that is intended for use of
manufacturing process.
4. Factory Supplies Inventory. Cost of unused indirect materials at end of the period.
ACCOUNTING FOR MANUFACTURING ACTIVITIES
Two accounting system may be used in accounting for manufacturing activities are:
1. Cost System – Keeps perpetual records of the cost of raw materials, work in process, and
finished goods inventory; provides more timely information about those inventories.
2. Non-cost System – Produces a manufacturing accounting system based on the periodic
inventory system. The cost of raw materials, work in process, and finished goods inventories are
based on physical counts. Used to compute consumed, finished, and sold during the period.
The following pro-forma journal entries under this system can be found on Page 10-4
or Module 21.
CHAPTER 11: PAYROLL
Payroll represents the amount of the money (salaries or wages) disbursed or paid to its
employees for the services that they provided. Total amount paid to employees for services
provided during a period.
Employee refers to an individual who is a recipient of salaries or wages. The person accepting
the terms and is obligated to provide the needed work as agreed upon by both parties in the
employment contract. Employee contribution is deducted from his salary.
Employer means a person for whom an individual performs and performed any services.
Obligated to pay its employees for the hours/days worked rendered. Employer contribution is
an operating expense.
Payroll Period means a period for which an employer ordinarily makes payment of salaries or
wages to the employees.
Payroll Disbursement – daily, weekly, semi-monthly, monthly
Payroll functions – payroll activities: hiring employees, timekeeping, preparing the payroll,
paying the payroll.
Wages are applicable for employees paid on an hourly or daily basis and is measured based on
the number of hours and days the employee came to work. (Fixed amount of compensation)
Examples: An employee is hired for 50 per hour and works 40 hours a week. Gross
earnings: 2,000 (50 x 40).
Salaries are fixed amount of money usually paid to employees on a bi-monthly or monthly
basis; usually refers to the pay of managerial and administrative employees.
Compensation includes salaries or wages including allowances and other benefits (ex: housing
allowance, transportation allowance, meal allowance)
DETERMINING THE PAYROLL
1. Gross Earnings – the total compensation earned by an employee.
- consists of wages or salaries, plus any bonuses and commissions; includes payment for
overtime.
Gross pay – total earnings before taxes and other deductions.
2. Payroll Deductions – amounts deducted from gross earnings to arrive at the amount received
by employees.
- either mandatory/statutory or voluntary; employer acts as a collection agent in behalf
of government agencies.
3. Net Pay – employees’ take-home pay; the difference between gross earnings and payroll
deductions.
Gross Earnings – Payroll Deductions = Net Pay
MANDATORY CONTRIBUTIONS AND DEDUCTIONS
- The percentage withheld from an employee’s pay by an employer who pays it to the
government on the employee’s behalf.
1. Social Security System (SSS) provides for a replacement income of income lost on account
of the mentioned agencies. Benefits are as follows: sickness, maternity, disability, retirement,
and death benefits.
- Under Republic Act No. 8282, SSS is the government mandated program for
employees working for private institutions in the Philippines.
2. PhilHealth ensures affordable health insurance coverage for working Filipinos, Republic Act
No. 7875 requires that all employees are insured through the Philippine Health Insurance
System. Premium rate for 2022 is 4.00% then the contribution will be divided equally for the
employees and employer.
3. Pag-IBIG Fund or Home Development Mutual Fund (HDMF), under presidential Decree
No. 1752, is a national savings program of the Philippines which aims to provide affordable
house financing for workers across the country.
Monthly Basic Salary Employee Share Employer Share
P1,500 and below 1% 2%
Over P1,500 2% 2%
4. National Internal Revenue Code (NIRC) where employers must withhold (deduct) taxes
from the payroll of their employees. Withheld taxes must be reported to the BIR every month by
the employer. Employee has the only share. On or before the 10 th day of the following month.

Payroll Sheet is a schedule prepared to help facilitate the preparation of journal entries every
pay date. Contains the following: Gross Earnings for the period, Deductions, and Net Pay for the
period. Example:
Then proceed to the following: