Fundamentals of Accountancy,

Business and Management 1

Quarter IV - Module 3
 Target

In the previous lessons, you have acquired the foundational knowledge about
a Merchandising Business's nature and how business transactions occur. It is a
prerequisite for you to achieve full mastery of the nature and description involving
Merchandising Business transactions.

The use of business journals requires the posting of transactions usually done
manually by an Accounting Clerk or Bookkeeper. A Merchandising Business where
the volume of transactions needs to identify appropriate journals for recording.
Merchandising Business's nature shall give rise to the idea wherein different
transactions require different journals, such as the General Journal and other Special
Journals.

After going through this module, you should be to:

Record transactions of a Merchandising Business in the General and Special
Journals (ABM_FABM11-IVe-j-36).

Subtasks
1. Understands the different business types;
2. Explains the rationale and significance of a record-keeping system ;
3. Identify what a General Journal (GJ) is;
4. Identify what Special Journals (SJ) are; and
5. Record Merchandising Business transactions

Pretest. Discover Me!

Directions: From the jumbled letters inside the boxes, re-arranged each box to
complete the thought. Use a separate sheet. (10 points)

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 Jumpstart

Activity 1: Let Us Try It!

Directions: Indicate the transaction journal that is likely to contain the details of
each given transaction. Use a separate sheet for your answers. (10 points)

Several transactions of Milk and Bath Shop described below:

1. Purchased P 55,000.00 worth of milk and bath soap products on account from
Pyroclastic Supply.

2. Received cash from a customer on account, P 1,120.00.

3. Purchased new liquid hand soap for use in the business, paid P 500.00 in cash.

4. Paid the current month's Electric bill of P 3,500.00.

5. Billed customers for milk and bath soap packages amounting to P 4,300.00.

6. Invested a second-hand Delivery Tricycle in the business valued at P 30,000.00.

7. Made a P 25,000.00 payment on account to Pyroclastic Supply.

8. Received Billing Statement for the month from Internet Service Provider
amounting to P 1,999.00.

9. Paid rent for April amounting P 5,000.00.

10. Approved loan borrowings from BDU amounting to P 60,000.00.

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 Discover

Overview of The Different Types of Businesses

Most Merchandising Businesses purchase goods that are ready for sale and
then resell them to target customers. Some common examples of products
consummated between buying and selling transactions are cars, clothing, grocery
items, and other commodities that do not need to undergo related production
processes.
What is the point of difference among businesses, such as a Service Business,
a Merchandising Business, and a Manufacturing Business?
Technically, a Service Business offers professional expertise for its customers.
We can see Lawyers offering Notary Public and Legal Counsel in exchange for a
Retainer’s fee, a Dentist for taking good care of our teeth and oral hygiene, and a
Physician for our health consultations and medications.
On the other hand, Manufacturing Businesses obtain raw materials and
undergo production processes to convert them into finished goods or new products.
This business type requires ―intervention‖ on the raw materials to transform them
into a new form of finished products to be sold. For Merchandising Business, it sells
a particular or a group of products through wholesale or retail in the same shape they
were acquired and bought. The Manufacturing Business produces these finished
goods that Merchandisers sell in public.
Merchandising Businesses earn profit through buying and selling products. The
Merchandising entity purchases inventory, sell the inventory, and uses cash to
purchase more inventories, and the cycle continues.
For Cash Sales, the cycle is from Cash to Inventory, and back to Cash. For Sales on
Account, the cycle is from Cash to Inventory to Accounts Receivable (A/R) and back
to Cash.
The ultimate goal of Merchandising Business is, the faster the sale of inventory and
collection of Cash Payments, the higher the profits! The profit or income helps sustain
business operations and defray operating expenses (OpEx) for smooth sailing
business transactions.

The Rationale for Recording Business Transactions

In designing a strong record-keeping system, businesses can present well-
structured financial reports documentation for easy retrieval, traceability, and Audit
trail purposes.
Accountants and Bookkeepers suggest having sufficient documentation and
the usual supporting papers such as Official Receipts, Purchase Invoice, Sales
Invoice, and other source documents as proof of evidence to warrant the transactions
consummated. It will provide businesses with reference in retrieving supporting
papers during Audit or regular financial records review.
Given the accurate analysis of business transactions, Accountants may easily
find Audit transactions with attachments (supporting papers) that are up to date,
clear, and free from material alterations that would put the transaction into doubt.
Some examples of recurring business transactions requiring source
documents and a strong record-keeping system are buying and selling, borrowings,
deposits, cash withdrawals, encashments, transfer balances, accommodation, credit
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lines, loans, and purchases, among others. All these transactions have monetary
considerations that need sufficient evidence necessary to prove it.

Significance of A Record-Keeping System

With the intricacies in running a Merchandising Business, business owners
must consider a strong Internal Control (IC) policy to safeguard Assets and other
company resources, e.g., stocks, inventories, and cash equivalents. A Merchandising
Business holds the volume of Inventories that require safe and secured warehouses.
It holds true when recording transactions using the account title—Merchandise
Inventory (Beginning or Ending).
Some of the promising benefits when having an excellent record-keeping
system are the following; 1) it helps in managing business accounts, profits,
payments, and cash receipts, 2) it serves as a basis for the development of new
strategies, 3) it helps in finding solutions for business issues, and 4) it helps in
monitoring business performance, growth rate, and profit analysis.
But what records should be kept?
With the evolving complexities in running a business, financial measures will
account for money or resources that come in and go out through record books or
transaction journals. There are reasons why Bookkeepers must write-down money
that comes in and out from the business, such as; 1) the owner does not combine
personal finances with the business money, 2) know when to buy on credit (Purchases
on account) or sell on credit (Accounts Receivable), 3) instill ―transparency‖ in
recording all the business finances, 4) the fear of a person cheating others (trust
issues), and 5) accurate administration of Net Proceeds, Net Income or Net Loss for
the Accounting periods with banks, suppliers, creditors, and other groups with
legitimate transactions to do with the business.
An excellent record-keeping system should be comprehensive and easy to
facilitate. It records the necessary financial information details depending on the
business's complexity, wherein the amount of financial information will subsequently
vary. Auditors encourage companies to keep accurate financial records for Audit
purposes.
Some of the recommended documents for an excellent record-keeping system
includes; 1) business accounts for checking, savings, investing, and credits, 2) an
Income and Expense ledger or appropriate software program to record all cash
business transactions by date and category, 3) inventory involves physical counting
and valuation, where it is done at least annually at the end of the Fiscal or Calendar
year, and 4) a depreciation schedule for business Assets showing Asset bases, such
as Historical Cost and Cost Valuation or Net Realizable Value (NRV).
What are the benefits of having an excellent record-keeping system?
When recording economic events, using the different transaction journals will
guide business owners to write down how much money comes in and how much
money goes out of the business. When the owner keeps and maintains an accurate
Book of Accounts, it can help improve the business performance. Journals can help
determine and measure quantifiable economic events, and recording becomes a
prerequisite in monitoring and controlling business activities for successful business
operations. The use of transaction journals ensures adequate recording of all financial
transactions in the business. A single person or employee has a limitation on how
much he can keep in his memory.

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Record Merchandising Business Transactions
Transactions and events are the starting points in the Accounting process.
Relying on business forms and economic events can analyze how they will affect
business performances and financial statuses. Special Journals used in recording
financial transactions help Bookkeepers and Accountants to identify and describe
transactions and events entering the Accounting process. These written pieces of
evidence contain information about the nature and the amounts of the transactions.
Indeed, these are the bases for journal entries and subsequent postings.
With an established yet reliable record-keeping system of any business type,
we can easily track (through Audit) business operations by understanding the
recorded financial data for owners’ decision making.
Bookkeepers or Accountants locate transaction journals such as General
Journal and Special Journals suited in recording some common examples of
Merchandising Business transactions like purchase of land, payment of rent,
payment of loans, borrowings from the banks, settlement of obligations, payment of
charges, billing statement, payroll, transportation expense, and commission.

The General Journal

It is a chronological record of the entity’s transactions. A journal entry shows
all the effects of a business transaction in terms of Debits and Credits. Each
transaction is initially recorded in a Journal rather than directly in the Ledger. A
General Journal (GJ) is called the book of original entry. The nature and volume of
business transactions determine the number and types of journals needed, where the
General Journal (GJ) is the simplest.
Let us examine the foregoing transactions posted on the General Journal
simple proforma, as shown below.

Transaction Details:
On January 02, 20XX, J. Reyes opened his business and invested the following
Assets: Cash – P 100,000.00; Accounts Receivable – P 400,000.00; Merchandise
Inventory – P 250,000.00; and Prepaid Supplies – P 10,000.00.

Page No. 1

Account Titles and Posting

Date Debit Credit
Explanations Reference

2020
Jan 2 Cash 101 P 100,000.00
Accounts Receivable 102 400,000.00
Merchandise Inventory 103 250,000.00
Prepaid Supplies 104 10,000.00

J. Reyes, Capital 301 P 760,000.00

To record initial investments made by J. Reyes.

Table 1. The General Journal

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The Special Journals
In anticipation of voluminous transactions in Merchandising Businesses, it would
become tedious to shift all transactions having with different nature in a single
journal. In helping ease reviewing similar transactions in the Book of Accounts,
Special Journals record similar business transactions.
Special Journals permit a division of labor. The Bookkeeping process will be handled
by many persons responsible for the particular type of business transaction when
recording it. Through this, it reduces recording time because transactions identified
and registered to the appropriate journals already.

Sales Journal. Sales of Merchandise are usually either paid in cash or on account
basis. Cash Sales for retailers like in the Department Stores run on Cash Register
Tapes (CRTs) then, summarized in a Cash Summary Report, and entered in the Sales
Journal based on the total amount.
Let us examine the foregoing transactions posted on the Sales Journal simple
proforma, as shown below.

Transaction Details:
January 20XX
02 Sold goods to LU Store, P 5,000.00
04 Sold goods to One Hour Trading, P 7,500.00
05 Sold goods to Champ Store, P 4,500.00
06 Cash sales for the week, P 8,000.00

Accounts Cash
Invoice Sales
Date Customers F Receivable Sales
No. Credit
Debit Debit

Jan 2 LU Store 101 / 5,000.00 5,000.00

4 One Hour Trading 102 / 7,500.00 7,500.00

5 Champ Store 103 / 4,500.00 4,500.00

6 Cash Sales CRT 8,000.00 8,000.00

P17,000.00 P8,000.00 P25,000.00
Table 2. The Sales Journal

Cash Receipts Journal. It is a book of original entry where all cash receipt
transactions recorded, such as cash investment, loans, cash sales, collections of
customers’ accounts, and cash refunds.
Let us examine the foregoing transactions posted on the Cash Receipts Journal
simple proforma, as shown below.
Transaction Details:
January 20XX
01 Jun Lee made cash investment, P 50,000.00
02 Borrowed from DBU of P 50,000.00 and issued a 90-day 18% note
06 Cash sales for the week, P 8,000.00
08 Collected P 5,000.00 from Reyes Trading
10 Collected in full from Champ Store, P 4,500.00
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 Sales
Accounts Cash
Received OR Discount Account Sundry
Date Explanations Cash Debit Debit F Receivable Sales
From # Title
Credit Credit F Dr Cr
Jan 1 Jun Lee Investment on 50,000.00 Lee, 301 50,000.00
file Cap
90-day, on
2 BDU 50,000.00 L/P 202 50,000.00
18% note file
6 Customers Cash sales CR 8,000.00 8,000.00
T
8 Reyes Partial 001 5,000.00 / 5,000.00
Trading collection
Champ Full
10 002 4,410.00 90.00 / 4,500.00
Store collection
P117,410.00 P90.00 P9,500.00 P8,000.00 P100,000.00
Table 3. The Cash Receipts Journal

Purchases Journal. Purchases of Merchandise are usually on cash or on account.

Invoices given by the suppliers support these. On the other hand, a Cash Voucher
supports any cash payment.
Let us examine the foregoing transactions posted on the Purchases Journal
simple proforma, as shown below.

Transaction Details:
January 20XX
05 Bought goods from Lee Trading on account, P 9,000.00
08 Bought goods from Von Trading on account, P 5,000.00
10 Bought goods from Sparrow Trading, P 2,500.00

Accounts Cash
Invoice Purchases
Date Purchased From F Payable Purchases
No. Debit
Credit Credit
Jan 5 Lee Trading 121 / 9,000.00 9,000.00
8 Von Trading 44 / 5,000.00 5,000.00
10 Sparrow Trading 10 / 2,500.00 2,500.00
P16,500.00 P14,000.00 P2,500.00
Table 4. The Purchases Journal

Cash Disbursements Journal. All cash payments recorded in this journal include
cash purchases of Merchandise and other Assets, payments of accounts and other
liabilities, payments of expenses, cash withdrawals of the owner, and cash refunds.
Let us examine the foregoing transactions posted on the Cash Disbursements
Journal simple proforma, as shown below.
Transaction Details:
January 20XX
08 Received down payment from Lex Trading, P 2,000.00
10 Cash purchases from Sparrow, P 2,500.00
11 Lee withdrew P 500.00
15 Paid Lee Trading in full, P 9,000.00
20 Cash refund to Xian Tan, P 1,000.00
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 V Sundry
Purchase Accounts Cash
Paid o. Cash
Date Explanations Discount Payable Purchases
To N Credit Account
Credit Debit F Debit Credit
o. F Debit Title

Lex Down
Jan 8 1 2,000.00 / 2,000.00
Trdg payment
10 Sparrow Cash 2 2,500.00 2,500.00
purchases
Cash Lee,
11 Lee 3 500.00 301 500.00
withdrawal Drawing
15 Lon Full 4 8,910.00 90.00 / 9,000.00
Trdg payment
Cash refund
20 Xia Tan 5 1,000.00 SRA 402 1,000.00
P14,910.00 P90.00 P11,000.00 P2,500.00 P1,500.00

Table 5. The Cash Disbursements Journal

Explore

Enrichment: My Online Business!

Directions: Prepare the General Journal to journalize the transactions below. Use a
separate sheet for your answers. (15 points)

On January 02, 20XX, Ella Goody opened Surplus Cellphone Accessories. The
business obtained the necessary business permits and began to operate using social
media. The business buys and sells cellphone accessories, and successful
transactions are coursed through authorized couriers in town due to COVID-19.

January 20XX
02 Ella Goody invested an initial capital of P 20,000.00.
04 Purchased accessories from Cell Supply, such as cellphone cases, headsets,
chargers, batteries, and screen protectors amounting to P 10,000.00.
06 Sold accessories to Princess Faye amounting to P 500.00, paid P 400.00 and
recorded a remaining balance of P 100.00.
07 Purchased accessories from Chinkee Lee Supply for P 5,000.00 on account.
Paid its freight (LBC) amounting to P 500.00.
11 Sold accessories to King Art amounting to P 5,000.00 on account.
12 Total cash sales for the day amounting to P 8,000.00.
13 Sold accessories to Princess Dianne amounting to P 2,000.00 on account.
16 Princess Faye settled her balances. Paid salaries of Store helper amounting to
P 5,000.00.
19 Made partial payment to Chinkee Lee Supply amounting to P 2,500.00.
20 King Art made a partial payment of P 3,000.00.
22 Total cash sales for the day amounting to P 10,000.00.
25 Purchased accessories from Te-Qua Merchandise and paid P 10,000.00.
26 Total miscellaneous paid for the day amounting to P 6,000.00.
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 30 Grant a customer refund of P 120.00 due to defective headset.
31 Paid salaries of Store helper amounting to P 5,000.00, paid Internet fee of
P 1,300.00 and paid utilities amounting to P 600.00.

The Bookkeeper considers the following Account Titles: Cash on Hand; A/R –
Princess Dianne, A/R – King Art; Merchandise Inventory; A/P – Chinkee Lee Supply;
Ella Goody, Capital; Sales; Sales Returns and Allowances; Purchases; Freight-In;
Salaries Expense; Miscellaneous Expense; Utilities Expense; and Internet Expense.
Posting Reference is optional.

Deepen

Activity 1. Special Journals

Directions: Using the foregoing details of the online transactions in January 20XX
by Surplus Cellphone Accessories. Identify the nature of each transaction and post
them using the appropriate Special Journals below. Use a separate sheet to copy first
the format for your answers. (20 points)

Sales Journal
Accounts Cash
Invoice Sales
Date
e Customers F Receivable Sales
No. Credit
Debit Debit

Cash Receipts Journal

Sales Accounts Cash Sundry
Received OR Cash Account
Date Explanations Discount F Receivable Sales
From # Debit Title
Debit Credit Credit F Dr Cr

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 Purchases Journal
Cash
Purchased Invoice Purchases Accounts
Date F Purchases
From No. Debit Payable Credit
Credit

Cash Disbursements Journal

Sundry
Accounts
Purchase Cash
Paid Vo. Cash Payable
Date Explanations Discount Purchases
To No. Credit Account
Credit Debit F Dr Cr
F Debit Title

Great job! You have understood the lesson well!

Gauge

Directions: Choose the letter of your best answer. Use a separate sheet for your
answers. (15 points)

1. What type of business buys and sells goods or products online due to COVID19?
A. Merchandising B. Online Business
C. Online Buying and Selling D. Online Marketing

2. How would you show the finance records, journals, or ledgers that compose the
company’s account?
A. Book of Accounts B. Book of Events
C. Book of Records D. Book of Transactions
3. How the General Journal (GJ) record all financial transactions?
A. Chronological B. Interval C. Order D. Sequential

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4. Which process shows when entering transactions into the Special Journals?
A. Accounting B. Bookkeeping
C. Journalizing D. Posting

5. What is considered a ―sin‖ in the whole Accounting process?

A. Abnormal Balance B. Force Balance
C. Imbalance D. Zero Balance

6. Which one is called the book of original entry?

A. General Journal B. General Ledger
C. Subsidiary Ledger D. T-Accounts

7. Which one is called the book of final entry?

A. General Journal B. General Ledger
C. Subsidiary Ledger D. T-Accounts

8. What journal records a simple journal entry that contains ―only one debit and one
credit account?
A. General Journal B. General Ledger
C. Subsidiary Ledger D. T-Accounts

9. What journal records a compound journal entry that contains ―either one debit
and two or more credits; or two or more debits and one credit; or two or more debits
and two or more credits?
A. General Journal B. General Ledger
C. Subsidiary Ledger D. T-Accounts

10. Which fact/s contains the Posting Reference (P.R.) or the ledger page in which
the accounts are transferred?
A. Account Titles and Explanations B. Chart of Accounts
C. Date D. Folio

11. What is the conclusion on the use of Posting Reference (P.R.) in transactions
journals?
A. It completes the whole Bookkeeping process
B. It counts the number of frequency usage of the Account Title/s
C. It proves the accuracy of the Account Title/s usage
D. It provides an Audit trail with ease of reference

12. How would you show your understanding when recording transactions, such
as cash investment, loans, cash sales, collections of customers’ accounts, and cash
refund?
A. Cash Receipts Journal B. General Journal
C. Special Journal D. Transaction Journal

13. What is the conclusion when recording transactions, such as cash purchases
of Merchandise and other Assets, payments of accounts and other liabilities,

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 payments of expenses, cash withdrawals of the owner, and cash refunds to
customers?
A. Cash Disbursements Journal B. Cash Receipts Journal
C. Purchases Journal D. Special Journal

14. What information would you use to record sales of Merchandise, cash sales of
retailers like in the Department Stores which rang on Cash Register Tapes (CRTs),
and summarized in a Cash Summary Report?
A. Cash Disbursements Journal B. Cash Receipts Journal
C. Purchases Journal D. Sales Journal

15. What information would you use to record all Merchandise purchases, which
are usually paid in cash or on account and supported by Invoices issued by the
suppliers?
A. Cash Disbursements Journal B. Cash Receipts Journal
C. Purchases Journal D. Sales Journal

You’re done on this part. Great job! Congratulations!

Answer Key
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