Merchandising
Quiz 2 scope: Units 4.1–4.6. Read the three unit reviewers, practice each unit, then use the mixed mock for a complete rehearsal.
Choose the inventory system
Periodic: inventory is updated after a physical count; Purchases and related accounts are used during the period. Cost of sales is computed at period end. Perpetual: inventory is updated throughout the period; sales have both a revenue entry and a cost/inventory entry. Physical counts still support controls in either system. Course transaction questions use periodic unless stated otherwise.
In a perpetual sale, the revenue entry records what the customer owes; the cost entry removes the goods from Inventory and recognizes Cost of sales. Those are different amounts with different purposes. In periodic accounting, the inventory count is needed to separate goods sold from goods still on hand.
Distinguish the discounts
A trade discount reduces list price to invoice price; it has no separate Trade Discount account. Successive discounts multiply: ₱36,000 less 10–5 = 36,000 × 0.90 × 0.95 = ₱30,780, not a single 15% discount.
The first discount leaves ₱36,000 × 0.90 = ₱32,400. The second takes 5% of that smaller amount, leaving ₱32,400 × 0.95 = ₱30,780. The purchase or sale is recorded at this invoice price; unlike a cash discount, the trade discount does not need its own contra account.
Cash discounts encourage early settlement. Terms 2/10, n/30 mean 2% within 10 days; the net balance is due within 30 days. The workbook begins day-counting on the day after the transaction date.
The source settlement convention
The supplied formula guide bases the cash discount on original payable/receivable after any downpayment and returns/allowances. It then subtracts partial settlements in determining the final cash balance. Use this explicitly stated course convention for its partial-payment examples.
FDN Trading: complete problem
All amounts are Philippine pesos (₱). Use the periodic inventory system. FDN Trading buys merchandise listed at 36,000, less successive trade discounts of 10% then 5%. It pays 10,000 down; the balance has terms 2/10, n/30. It returns 1,000 of invoiced goods and makes a prior partial payment of 5,000. It settles the balance within the discount period. The 900 freight is FOB shipping point, collect, paid separately; freight is excluded from the supplier-account discount base. For this exercise, apply the course formula: compute the 2% cash discount on the original payable after downpayment and returns; subtract prior partial payments separately when finding final cash.
Find the invoice price, original payable, allowed discount, and final settlement. Also determine the amount due if settlement occurs after the discount period.
FDN Trading example | Amount |
|---|---|
Invoice price after 10–5 trade discounts | ₱30,780 |
Less downpayment | ₱10,000 |
Original payable | ₱20,780 |
Less return | ₱1,000 |
Amount subject to 2% cash discount | ₱19,780 |
Cash discount | ₱395.60 |
Less prior partial payment from 19,780 | ₱5,000 |
Outstanding before final discount | ₱14,780 |
Final cash, inside discount period | ₱14,384.40 |
Final cash, after discount period | ₱14,780 |
Buyer records Purchases at ₱30,780, Cash at ₱10,000 and AP at ₱20,780. Returns debit AP and credit Purchase returns and allowances. Discounted settlement debits remaining AP ₱14,780, credits Purchase discounts ₱395.60, and credits Cash ₱14,384.40. Seller entries mirror the receivable, Sales returns, and Sales discounts.
The ₱1,000 return reduces the amount charged for goods, so it reduces the stated discount base: (₱20,780 − ₱1,000) × 0.02 = ₱395.60. The course formula deducts the ₱5,000 partial payment separately: ₱20,780 − ₱1,000 − ₱5,000 − ₱395.60 = ₱14,384.40 final cash. Using the remaining ₱14,780 as the discount base would give ₱295.60 and conflict with this exercise's explicit convention. The ₱900 freight is paid to the carrier separately, so it is not included in the supplier account or its discount base.
Freight: responsibility and payer are separate
FOB shipping point means buyer ownership/risk and freight responsibility during transit in the course examples. FOB destination means seller ownership/risk until destination and seller freight responsibility. Freight collect means buyer actually pays; prepaid means seller actually pays.
Terms | Buyer entry | Seller entry |
|---|---|---|
Shipping point, collect | Dr Freight in; Cr Cash | No freight entry |
Shipping point, prepaid | Dr Freight in; Cr AP | Dr AR; Cr Cash |
Destination, collect | Dr AP; Cr Cash | Dr Freight out; Cr AR |
Destination, prepaid | No freight entry | Dr Freight out; Cr Cash |
Freight in is part of merchandise cost. Freight out is a selling expense.
First ask who bears the cost, then who pays the carrier. For shipping point, prepaid, the seller initially pays a buyer cost, so the buyer owes reimbursement: Dr Freight in; Cr AP. For destination, collect, the buyer initially pays a seller cost, so its payment reduces the supplier debt: Dr AP; Cr Cash. Prepaid and collect alone do not determine whether the cost is Freight in or Freight out.
Build gross profit
Net sales = Sales − Sales returns/allowances − Sales discounts
Net purchases = Purchases − Purchase returns/allowances − Purchase discounts
Net cost of purchases = Net purchases + Freight in
Goods available = Beginning inventory + Net cost of purchases
Cost of sales = Goods available − Ending inventory
Gross profit = Net sales − Cost of sales
PS2: complete problem
All amounts are Philippine pesos (₱). Use the periodic inventory system. The period’s balances are:
Account | Amount |
|---|---|
Sales | 140,000 |
Sales returns and allowances | 7,000 |
Sales discounts | 5,000 |
Purchases | 85,000 |
Purchase returns and allowances | 4,000 |
Purchase discounts | 3,500 |
Freight in | 12,000 |
Beginning inventory | 20,000 |
Ending inventory | 16,700 |
Compute net sales, net purchases, net purchase cost, goods available, cost of sales, and gross profit.
PS2: worked results
Workbook PS2 gives sales 140,000, sales returns 7,000, sales discounts 5,000: net sales 128,000. Purchases 85,000 less returns 4,000 and discounts 3,500 gives net purchases 77,500. Add freight in 12,000: 89,500 net purchase cost. Add beginning inventory 20,000: 109,500 goods available. Less ending inventory 16,700: 92,800 cost of sales. Gross profit is 35,200.
Why each subtotal changes
Sales reductions are revenue the business does not retain: ₱140,000 − ₱7,000 − ₱5,000 = ₱128,000 net sales.
Supplier reductions lower acquisition cost: ₱85,000 − ₱4,000 − ₱3,500 = ₱77,500 net purchases. Buyer-borne freight brings those goods into the business, so ₱77,500 + ₱12,000 = ₱89,500 net cost of purchases.
Opening stock was also available to sell: ₱20,000 + ₱89,500 = ₱109,500 goods available. Unsold stock remains an asset, so ₱109,500 − ₱16,700 = ₱92,800 cost of sales.
Gross profit compares net revenue with the cost sold: ₱128,000 − ₱92,800 = ₱35,200. It is not yet net profit because other operating expenses have not been deducted.
Special journals
Credit sales → sales journal. Credit purchases → purchases journal. Repeated receipts → cash receipts journal. Repeated payments → cash payments journal. Returns may use corresponding returns journals. Use the general journal for entries outside those categories. Summary postings and division of work improve efficiency and the audit trail.
Classify by both the activity and whether cash changes hands. A cash sale belongs in Cash receipts, not the credit-sales journal; paying an existing supplier account belongs in Cash payments rather than recording another purchase.
Quiz 2 focus: Unit 4.6
The released Quiz 2 sets and Mima Ropa conference exercise combine trade discounts, downpayments, returns/allowances, partial settlements, discount windows and freight. The hardest part is deciding which number belongs in which calculation. Use periodic inventory unless the question explicitly chooses perpetual, and use non-VAT figures unless a tax is explicitly included.
Sort the numbers before using a formula
Given amount | Where it belongs |
|---|---|
List price | Starting point before successive trade discounts |
Invoice price | Purchases or Sales amount, already net of trade discounts |
Downpayment | Reduces initial AP/AR, not the Purchases/Sales amount |
Invoiced return or allowance | Reduces the related payable/receivable and purchases/sales through a contra account |
Partial settlement | Reduces the outstanding account; under the stated course formula it does not reduce the original discount base |
Freight borne by buyer | Freight in under periodic; acquisition cost |
Freight borne by seller | Freight out; operating selling expense, outside cost of sales |
Net purchases / net cost of purchases | The latter already includes freight in; never add it a second time |
Net sales | Already deducts sales returns/allowances and sales discounts |
If returns are stated at invoice value, subtract that amount once. If a task supplies a list-price value for the returned goods, it must tell you to apply the trade discount to it. A “less 10–5” trade chain leaves 90% × 95% = 85.5%, so the equivalent reduction is 14.5%, not 15%.
Original buyer case: Sariwa Trading
Sariwa uses periodic inventory. On September 1, 2026 it buys goods listed at ₱240,000, less 10% then 5% trade discounts. It pays 25% of invoice price down, balance 2/10, n/30. It pays ₱4,200 freight to the carrier, FOB shipping point, collect. On September 3 it returns goods invoiced at ₱3,900. On September 6 it pays ₱36,000 toward the account without separately claiming a discount. It settles on September 11, the last discount day. For this case, the course discount base is original payable after downpayment and returns; freight and prior partial payment are excluded from that base.
Invoice price = 240,000 × 0.90 × 0.95 = ₱205,200. Downpayment = 205,200 × 25% = ₱51,300. Original payable = 205,200 − 51,300 = ₱153,900. After return, discount base = 153,900 − 3,900 = ₱150,000. Purchase discount = 150,000 × 2% = ₱3,000. Outstanding before discount = 150,000 − 36,000 = ₱114,000. Final supplier cash = 114,000 − 3,000 = ₱111,000.
Date | Complete buyer entry |
|---|---|
September 1 purchase | Dr Purchases 205,200; Cr Cash 51,300; Cr Accounts payable 153,900 |
September 1 freight | Dr Freight in 4,200; Cr Cash 4,200 |
September 3 return | Dr Accounts payable 3,900; Cr Purchase returns and allowances 3,900 |
September 6 partial payment | Dr Accounts payable 36,000; Cr Cash 36,000 |
September 11 settlement | Dr Accounts payable 114,000; Cr Purchase discounts 3,000; Cr Cash 111,000 |
The supplier-account reconciliation is 153,900 = 3,900 + 36,000 + 3,000 + 111,000. The cost reconciliation is 205,200 − 3,900 − 3,000 + 4,200 = ₱202,500 net cost of this purchase. Total cash outlay is 51,300 + 4,200 + 36,000 + 111,000 = ₱202,500, agreeing because this isolated purchase is fully settled. Downpayment and partial payment do not reduce acquisition cost a second time.
If final payment were September 12, no cash discount would be available: final supplier cash would be ₱114,000, with no Purchase discounts credit. Being within n/30 alone does not earn a 2/10 discount. Count September 2 as day one, making September 11 day ten.
Original seller case: tiered terms and freight paid by the customer
On September 4, 2026, Sariwa sells goods at list ₱160,000 less 10%, terms 3/5, 1/15, n/30. Invoice price is ₱144,000. The shipment is FOB destination, collect; the customer pays ₱1,800 to the carrier on September 6 for the seller's cost. An invoice-value return of ₱4,000 is accepted September 8. The customer makes a ₱35,000 partial payment September 10, with no discount recorded then, and settles September 19. Apply the course formula: discount on original invoice less returns, excluding freight reimbursement and the prior partial payment from the discount base.
September 19 is day 15 after September 4, so the applicable discount is 1%, not 3% and not 4%. Discount = (144,000 − 4,000) × 1% = ₱1,400. Final Cash = 144,000 − 1,800 − 4,000 − 35,000 − 1,400 = ₱101,800.
The seller records the original Dr Accounts receivable 144,000; Cr Sales 144,000. When the customer pays the seller's freight: Dr Freight out 1,800; Cr Accounts receivable 1,800. The return is Dr Sales returns and allowances 4,000; Cr Accounts receivable 4,000. The partial collection is Dr Cash 35,000; Cr Accounts receivable 35,000. The final settlement is Dr Cash 101,800; Dr Sales discounts 1,400; Cr Accounts receivable 103,200.
Check the receivable: 144,000 − 1,800 − 4,000 − 35,000 − 103,200 = zero. Net sales = 144,000 − 4,000 − 1,400 = ₱138,600. Freight out ₱1,800 is separately an operating expense; subtracting it in net sales would confuse the revenue subtotal with later operating profit. The customer has discharged ₱138,600 in value through cash collections 35,000 + 101,800 and the ₱1,800 payment of the seller's freight.
Original mixed-balance statement problem
Use periodic inventory. All amounts are pesos; the following are raw period balances. No missing account or VAT adjustment is required.
Account | Amount |
|---|---|
Sales | 720,000 |
Purchases | 380,000 |
Freight out | 12,000 |
Merchandise inventory, beginning | 95,000 |
Sales discounts | 11,000 |
Purchase returns and allowances | 17,000 |
Salaries expense | 54,000 |
Freight in | 13,000 |
Sales returns and allowances | 24,000 |
Merchandise inventory, ending | 88,000 |
Purchase discounts | 9,000 |
Net sales = 720,000 − 24,000 − 11,000 = ₱685,000. Net purchases = 380,000 − 17,000 − 9,000 = ₱354,000. Net cost of purchases = 354,000 + 13,000 = ₱367,000. Goods available = 95,000 + 367,000 = ₱462,000. Cost of sales = 462,000 − 88,000 = ₱374,000. Gross profit = 685,000 − 374,000 = ₱311,000. If asked for profit after only the listed operating expenses, 311,000 − 12,000 − 54,000 = ₱245,000; gross profit itself remains ₱311,000.
If a separate problem gives net cost of purchases directly, use Beginning inventory + that subtotal − Ending inventory. Do not also deduct the listed purchase discounts/returns or add listed freight in unless the task says that subtotal is incomplete.
What the Mima Ropa exercise teaches
The workbook traces owner contributions at stated fair value, periodic purchase/sale entries, successive discounts, debit/credit memos, freight and tiered settlements. Its supplied June 15 “what if” collection is an alternative to the later June 25 collection. Recording both full collections would clear the same receivable twice.
One displayed arithmetic line abbreviates 111,924 × 1% as 119.24. The independently checked amount is ₱1,119.24, consistent with the workbook's actual discount entry and ₱54,842.76 hypothetical final cash (55,962 − 1,119.24). For the actual June 25 branch, the discount period has elapsed, so the remaining ₱55,962 is collected without discount. These source-check notes distinguish a typo from the accounting method.
Last-pass checks before submitting
Use the party's viewpoint throughout; a buyer's Purchase discount credit mirrors a seller's Sales discount debit. A return involves physical goods; an allowance leaves the goods with the customer. Both reduce the invoice-value balance through the appropriate contra account. Shipping point/destination determines responsibility, while prepaid/collect identifies who initially paid. A cash sale belongs in Cash receipts; a credit merchandise sale belongs in Sales journal. Under perpetual inventory a sale also needs the cost entry, while periodic recording waits for the period-end inventory calculation.
Sources
FDNACCT Unit 4.6_Journalizing transactions specific to merchandising business_Study Guide.pdf, pp. 1–2; FDNACCT_Formula Guide_Quiz #2.pdf
FDNACCT Unit 4.6_Journalizing transactions specific to merchandising business_Class Exercise.xlsx, Mdsg; PS1; PS2; Systems
FDNACCT_2526_T1_Quiz #2_1_Questionnaire.pdf; question patterns and independently checked course methods
FDNACCT_2526_T1_Quiz #2_3_Solutions to PS.pdf; question patterns and independently checked course methods
FDNACCT_2526_T2_Quiz #2_1_Questionnaire.pdf; question patterns and independently checked course methods
FDNACCT_2526_T2_Quiz #2_2_Answer Key_updated.pdf; question patterns and independently checked course methods
FDNACCT_2526_T2_Quiz #2_3_Solutions to PS.pdf; question patterns and independently checked course methods
FDNACCT_2526_T3_Quiz #2_1_Questionnaire.pdf; question patterns and independently checked course methods
FDNACCT_2526_T3_Quiz #2_3_Solutions to PS.pdf; question patterns and independently checked course methods
CONFERENCE EXERCISE #1 - Journalizing Non-VAT Transactions (MIMA ROPA COMPANY)-1 (1).xlsx, Sheet1; question patterns and independently checked course methods