PERPETUAL INVENTORY METHOD

Problem 1: Paul Dee registered his business PD Merchandising with DTI and started operation on May of the
current year. Below are the transactions of his business during the month of May.

Note: Amounts in Philippines Peso (₱)

May 3 Paul Dee invested 80,000 to start his merchandising business.
4 Purchased goods from ABC Marketing, list price 30,000, trade discount 20%, terms 2/10, n/20,
FOB Shipping Point, Freight Collect 1,000.
5 Purchased store equipment worth 45,000.
6 Sold merchandise for cash, 17,000. Cost of goods sold, 11,550. FOB Destination
8 Invested additional cash of 50,000 and delivery equipment worth 80,000.
9 Purchased merchandise for cash, 20,000.
10 Sold merchandise to Aking Trading, 20,000, cost 12,500. Terms 2/10, n/30, FOB Destination.
12 Returned to ABC Marketing defective merchandise worth 500.
13 Paid freight of May 6 sale, 450.
14 Paid ABC Marketing.
15 Paid salary, 1,500.
16 Issued a promissory note to LandBank for loan taken, 100,000.
16 Sent a refund to May 6 sale for the wrong specification of merchandise sold, 2,500.
16 Purchased supplies worth 900 on credit. (Assumption: Asset Method)
17 Purchased goods for cash, 40,000.
18 Sold merchandise, 28,000, FOB Destination, term 2/10, n/eom. Cost of sales, 21,000.
20 Paid for freight for May 18 sales, 700.
21 Paid freight of May 5 purchase of equipment, 1,500.
22 Received cash 850 for defective merchandise purchased on May 9.
23 Sold merchandise, 12,000, FOB Shipping Point, terms 2/10, n/30. Freight of 200 was paid by Paul
Dee. Cost of sales, 8,400.
25 Paul Dee withdrew 2,200 for personal use.
28 Received partial payment for May 18 sales.
30 Paid salary, 1,500.
31 Paid various expenses:
Utilities 400
Fuel Expense 800
Rent 2,500

Required:
1. Prepare Journal Entries
2. Post the Journal Entries to the Ledger
3. Prepare Trial Balance
4. Prepare Income Statement
5. Prepare Statement of Changes in Owner’s Equity
6. Prepare Balance Sheet
7. Prepare Statement of Cash Flow
8. Prepare Closing Entries.
9. Prepare Post-Closing Trial Balance
 CHART OF ACCOUNTS FOR JOURNALIZING TRANSACTION

100 ASSETS 400 REVENUE

101 Cash 401 Sales
103 Accounts Receivable 402 Sales Returns and Allowances
104 Supplies 403 Sales Discounts
115 Merchandise Inventory
121 Store Equipment 502 COST OF GOODS SOLD
123 Delivery Equipment
600 OPERATING EXPENSES
200 LIABILITIES 604 Freight Out
211 Accounts Payable 607 Fuel Expense
221 Notes Payable 610 Salary Expense
612 Rent Expense
300 EQUITY 616 Utilities
301 P. Dee, Capital
302 P. Dee, Drawing
303 Income Summary

CHART OF ACCOUNTS FOR PREPARATION OF FINANCIAL STATEMENTS

100 ASSETS 400 REVENUE

101 Cash and Cash Equivalents 401 Sales
103 Accounts Receivable 402 Sales Returns and Allowances
104 Supplies 403 Sales Discounts
115 Merchandise Inventory
121 Store Equipment 502 COST OF GOODS SOLD
123 Delivery Equipment
600 OPERATING EXPENSES
200 LIABILITIES 604 Freight Out
211 Accounts Payable 607 Fuel Expense
221 Notes Payable 610 Salary Expense
612 Rent Expense
300 EQUITY 616 Utilities
301 P. Dee, Capital
302 P. Dee, Drawing
303 Income Summary
General Journal
Page 1 (GJ-1)
ACCOUNT
20xx ACCOUNT TITLES & EXPLANATION NUMBER DEBIT CREDIT
May 03 Cash 101 80,000
P. Dee, Capital 301 80,000
To record investment of owner.
#
04 Merchandise Inventory 115 25,000
Accounts Payable 211 24,000
Cash 101 1,000
To record purchases from ABC Mktg., 2/10, n/20. Freight collect, 1,000.
#
05 Store Equipment 121 45,000
Cash 101 45,000
To record purchase of store equipment.
#
06 Cash 101 17,000
Sales 401 17,000
To record cash sales.
#
Cost of Goods Sold 502 11,550
Merchandise Inventory 115 11,550
To record cost of goods sold.
#
08 Cash 101 50,000
Delivery Equipment 123 80,000
P. Dee, Capital 301 130,000
To record addition investment of owner.
#
09 Merchandise Inventory 502 20,000
Cash 101 20,000
To record cash purchases.
#
10 Accounts Receivable 103 20,000
Sales 401 20,000
To record sales to Aking Trading, 2/10, n/30.
#
Cost of Goods Sold 502 12,500
Merchandise Inventory 115 12,500
To record cost of goods sold.
#
12 Accounts Payable 211 500
Merchandise Inventory 115 500
To record purchase returns to ABC Mktg.
#
13 Freight Out 604 45
Cash 101 450
To record purchase returns to ABC Mktg.
#
14 Accounts Payable 211 23,500
Merchandise Inventory 115 470
Cash 101 23,030
To record full settlement of pay. to ABC Mktg. less discount
General Journal
Page 2 (GJ-2)
ACCOUNT
20xx ACCOUNT TITLES & EXPLANATION NUMBER DEBIT CREDIT
May 15 Salary Expense 610 1,500
Cash 101 1,500
To record payment of salary.
#
16 Cash 101 100,000
Notes Payable 221 100,000
To record cash loan from Land Bank, issued promissory note.
#
16 Sales Returns and Allowances 402 2,500
Cash 101 2,500
To record cash refund to customer on May 6 sales.
#
16 Supplies 104 900
Accounts Payable 211 900
To record purchase of supplies on credit.
#
17 Merchandise Inventory 115 40,000
Cash 101 40,000
To record cash purchases.

18 Accounts Receivable 103 28,000

Sales 401 28,000
To record sales to customer, 2/10, n/eom.
#
Cost of Goods Sold 502 21,000
Merchandise Inventory 115 21,000
To record cost of goods sold.
#
20 Freight Out 604 700
Cash 101 700
To record payment of friend on May 18 sales.
#
21 Store Equipment 121 1,500
Cash 101 1,500
To record payment of freight on May 5 purchase of equipment.
#
22 Cash 101 850
Merchandise Inventory 115 850
To record cash refund from supplier on May 9 purchases.
#
23 Accounts Receivable 103 12,200
Sales 401 12,000
Cash 101 200
To record sales, 2/10, n/30, freight prepaid 200.
#
Cost of Goods Sold 502 8,400
Merchandise Inventory 115 8,400
To record cost of goods sold.
#
24 Cash 101 7,500
Merchandise Inventory 115 7,500
To record cash refund from supplier on May 17 purchases.
General Journal
Page 3 (GJ-3)
25 P. Dee, Drawing 302 2,200
Cash 101 2,200
To record withdrawal of cash by the owner.
#
28 Cash 101 27,440
Sales Discount 403 560
Accounts Receivable 103 28,000
To record collection of rec. from May 18 sales less discount.
#
30 Salary Expense 610 1,500
Cash 101 1,500
To record payment of salary.
#
31 Fuel Expense 607 800
Rent Expense 612 2,500
Utilities 616 400
Cash 101 3,700
To record payment of fuel, rent, and utilities.
 GENERAL LEDGER
Account Number: 101 Account Name: CASH
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 03 Investment GJ-1 80,000 80,000
04 Freight In GJ-1 1,000 79,000
05 Store Equipment GJ-1 45,000 34,000
06 Sales GJ-1 15,000 51,000
08 Additional investment GJ-1 50,000 101,000
09 Purchases GJ-1 20,000 81,000
13 Freight Out GJ-1 450 80,550
14 Payment – ABC GJ-1 23,030 57,520
15 Salary GJ-2 1,500 56,020
16 Loan – Land Bank GJ-2 100,000 156,020
16 Refund to customer GJ-2 2,500 153,520
17 Purchases GJ-2 40,000 113,520
20 Freight Out GJ-2 700 112,820
21 Store Equipment, freight GJ-2 1,500 111,970
22 Refund from supplier GJ-2 850 119,470
23 Freight prepaid GJ-2 200 117,270
24 Refund from supplier GJ-2 7,500 144,710
25 Withdrawal GJ-3 2,000 143,210
28 Collection – May 18 sales GJ-3 27,440 142,810
30 Salary GJ-3 1,500 142,010
31 Fuel, Rent, and Utilities GJ-3 3,700 139,510

GENERAL LEDGER
Account Number: 103 Account Name: ACCOUNTS RECEIVABLE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 10 Aking Trading – 2/10, n/30 GJ-1 20,000 20,000
18 Sales – 2/10, n/eom GJ-2 28,000 48,000
23 Sales – 2/10, n/30, and Freight prepaid, 200 GJ-2 12,200 60,200
28 Collection – May 18 sales GJ-3 28,000 32,200

GENERAL LEDGER
Account Number: 104 Account Name: SUPPLIES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 16 Credit GJ-2 900 900
 GENERAL LEDGER
Account Number: 115 Account Name: MERCHANDISE INVENTORY
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 04 Purchases GJ-1 24,000 24,000
04 Freight In GJ-1 1,000 25,000
06 Cost of sales GJ-1 11,550 13,440
09 Purchases GJ-1 20,000 33,450
10 Cost of sales GJ-1 12,500 20,950
12 Purchase returns GJ-1 500 20,450
14 Purchase discounts GJ-1 470 19,980
17 Purchases GJ-2 40,000 59,980
18 Cost of sales GJ-2 21,000 38,980
22 Cash refund from suppliers GJ-2 850 38,130
23 Cost of sales GJ-2 8,400 29,730
24 Cash refund from suppliers GJ-2 7,500 22,230

GENERAL LEDGER
Account Number: 121 Account Name: STORE EQUIPMENT
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 05 Cash GJ-1 45,000 45,000
21 Freight GJ-3 1,500 46,500

GENERAL LEDGER
Account Number: 123 Account Name: DELIVERY EQUIPMENT
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 08 Additional investment GJ-1 80,000 80,000

GENERAL LEDGER
Account Number: 211 Account Name: ACCOUNTS PAYABLE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 04 ABC Mktg. – 2/10, n/20 GJ-1 24,000 24,000
12 Purchase returns – ABC GJ-1 500 23,500
14 Payment – ABC GJ-1 23,500 0
16 Supplies GJ-2 900 900

GENERAL LEDGER
Account Number: 221 Account Name: NOTES PAYABLE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 16 Cash Loan – Land Bank GJ-2 100,000 100,000
 GENERAL LEDGER
Account Number: 301 Account Name: P. DEE, CAPITAL
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 03 Cash GJ-1 80,000 80,000
08 Cash and Delivery equipment GJ-1 130,000 210,000
31 Income summary GJ-4 12,640 222,640
31 Drawing GJ-4 2,200 220,440

GENERAL LEDGER
Account Number: 302 Account Name: P. DEE, DRAWING
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 25 Cash GJ-3 2,200 2,200
31 Closing GJ-4 2,200 0

GENERAL LEDGER
Account Number: 303 Account Name: INCOME SUMMARY
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Sales GJ-4 73,940 73,940
31 Cost of Goods Sold and Expense GJ-4 61,300 12,640
31 Closing GJ-4 12,640 0

GENERAL LEDGER
Account Number: 401 Account Name: SALES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 06 Cash GJ-1 17,000 17,000
10 Credit GJ-1 20,000 37,000
18 Credit GJ-2 28,000 65,000
23 Credit GJ-2 12,000 77,000
31 Closing GJ-4 77,000 0

GENERAL LEDGER
Account Number: 402 Account Name: SALES RETURNS AND ALLOWANCES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 16 May 16 sales GJ-2 2,500 2,500
31 Closing GJ-4 2,500 0

GENERAL LEDGER
Account Number: 403 Account Name: SALES DISCOUNTS
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 28 May 18 sales GJ-3 560 560
31 Closing GJ-4 560 0
 GENERAL LEDGER
Account Number: 502 Account Name: COST OF GOODS SOLD
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 06 Cash GJ-1 11,550 11,550
10 Credit GJ-1 12,500 24,050
18 Credit GJ-2 21,000 45,050
23 Credit GJ-2 8,400 53,450
31 Closing GJ-4 53,450 0

GENERAL LEDGER
Account Number: 604 Account Name: FREIGHT OUT
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 13 Cash GJ-1 450 450
20 Cash GJ-2 700 1,150
31 Closing GJ-4 1,150 0

GENERAL LEDGER
Account Number: 607 Account Name: FUEL EXPENSE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Cash GJ-3 800 800
31 Closing GJ-4 800 0

GENERAL LEDGER
Account Number: 610 Account Name: SALARY EXPENSE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 15 Cash GJ-2 1,500 1,500
30 Cash GJ-3 1,500 3,000
31 Closing GJ-4 3,000 0

GENERAL LEDGER
Account Number: 612 Account Name: RENT EXPENSE
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Cash GJ-3 2,500 2,500
31 Closing GJ-4 2,500 0

GENERAL LEDGER
Account Number: 615 Account Name: UTILITIES
BALANCE
20XX PARTICULARS P.R. DEBIT CREDIT
DEBIT CREDIT
May 31 Cash GJ-3 400 400
31 Closing GJ-4 400 0
 PD MERCHANDISING
TRIAL BALANCE (UNADJUSTED)
MAY 31, 20XX

ACCOUNT
NUMBER ACCOUNT NAME DEBIT CREDIT
101 Cash 139,510
103 Accounts Receivable 32,200
104 Supplies 900
115 Merchandise Inventory 22,230
121 Store Equipment 46,500
123 Delivery Equipment 80,000
211 Accounts Payable 900
221 Notes Payable 100,000
301 P. Dee, Capital 210,000
302 P. Dee, Drawing 2,200
401 Sales 77,000
402 Sales Returns and Allowances 2,500
403 Sales Discounts 560
502 Cost of Goods Sold 53,450
604 Freight Out 1,150
607 Fuel Expense 800
610 Salary Expense 3,000
612 Rent Expense 2,500
615 Utilities 400
TOTALS 387,900 387,900

NOTE: Amounts are based on ledger balances before closing the accounts.

PD MERCHANDISING
INCOME STATEMENT
MAY 31, 20XX

Sales 77,000
Less: Sales Returns and Allowances 2,500
Sales Discounts 560 3,060
Net Sales 73,940
Less: Cost of Goods Sold 53,450
Gross Profit 20,490
Less: Operating Expenses:
Freight Out 1,150
Fuel Expense 800
Salary Expense 3,000
Rent Expense 2,500
Utilities 400
Total Operating Expenses 7,850
Net Profit 12,640
 PD MERCHANDISING
STATEMENT OF CHANGES IN OWNER’S EQUITY
MAY 31, 20XX

P. Dee, Capital, Beg. 0

Add: Investment 210,000
Less: Withdrawal 2,200
Net Capital 207,800
Add: Net Profit 12,640
P. Dee, Capital, End. 220,440
or
P. Dee, Capital, Beg. 0
Add: Investment 210,000
Less: Withdrawal 2,200
Add: Net Profit 12,640
P. Dee, Capital, End. 220,440

PD MERCHANDISING
BALANCE SHEET
MAY 31, 20XX

ASSETS
Current Assets:
Cash and Cash Equivalents 139,510
Accounts Receivable 32,200
Supplies 900
Merchandise Inventory 22,230
Total Current Assets 194,840
Non-Current Assets:
Store Equipment 46,500
Delivery Equipment 80,000
Total Non-Current Assets 126,500
Total Assets 321,340

LIABILITIES AND OWNER’S EQUITY

Current Liabilities:
Accounts Payable 900
Total Current Liabilities 900
Non-Current Liabilities:
Notes Payable 100,000
Total Non-Current Liabilities 100,000
Total Liabilities 100,900
Owner’s Equity
P. Dee, Capital 220,440
Total Owner’s Equity 220,440
Total Liabilities and Owner’s Equity 321,340

NOTE: Amounts are based on ledger balances after closing the accounts.
 PD MERCHANDISING
STATEMENT OF CASH FLOW
MAY 31, 20XX

Cash Flow from Operating Activities:

Cash Received from:
Cash Sales 17,000
Receivables (Collected) 27,440
Refund from Supplier (Purchase Returns and Allowances - Cash) 8,350
Cash Payment to:
Goods bought (Paid purchases) (83,030)
Freight on Purchases (Freight In) (1,000)
Freight on Sales (Freight Out) (1,150)
Freight payment (Freight Prepaid) (200)
Refund to Customers (Sales Returns and Allowances - Cash) (2,500)
Operating Expenses (Excluding Freight Out) (6,700)
Net Cash Flow from Operating Activities: (41,790)

Cash Flow from Investing Activities:

Purchase of Store Equipment (Purchase price + freight) (46,500)
Net Cash Flow from Investing Activities (46,500)

Cash Flow from Financing Activities:

Investment (Cash only) 130,000
Borrowing (Bank loans) 100,000
Drawing (Cash only) (2,200)
Net Cash Flow from Financing Activities 227,800

Net Increase/Decrease in Cash for the Period 139,510

Add: Cash Balance, Beg. 0
Cash Balance, End. 139,510

NOTE: Refer to CASH ledger.

General Journal
Page 4 (GJ-4) Closing Entries
ACCOUNT
20xx ACCOUNT TITLES & EXPLANATION NUMBER DEBIT CREDIT
May 31 Sales 401 77,000
Sales Returns and Allowances 402 2,500
Sales Discounts 403 560
Income Summary 303 73,940
To close sales account to Income Summary.
#
31 Income Summary 303 61,300
Cost of Goods Sold 502 53,450
Freight Out 604 1,150
Fuel Expense 607 800
Salary Expense 610 3,000
Rent Expense 612 2,500
Utilities 615 400
To close cost of goods sold and expense account to Income Summary.
#
31 Income Summary 303 12,640
P. Dee, Capital 301 12,640
To close Income Summary account to capital account.
#
31 P. Dee, Capital 301 2,200
P. Dee, Drawing 302 2,200
To close drawing account to capital account.
#

PD MERCHANDISING
POST-CLOSING TRIAL BALANCE
MAY 31, 20XX

ACCOUNT
NUMBER ACCOUNT NAME DEBIT CREDIT
101 Cash 139,510
103 Accounts Receivable 32,200
104 Supplies 900
115 Merchandise Inventory 22,230
121 Store Equipment 46,500
123 Delivery Equipment 80,000
211 Accounts Payable 900
221 Notes Payable 100,000
301 P. Dee, Capital 220,440
TOTALS 321,340 321,340

NOTE: Amounts are based on ledger balances after closing the accounts.

Problem 2: Adjusting Entries (3 cases, 4 points each case) Study na lang ang mga adjusting entries:
a. Accrual of Income: Income Method and Liability Method (Original Entry Assumption: Income Method)
b. Accrual of Expense: Expense Method and Asset Method (Original Entry Assumption: Asset Method)
GOD BLESS AND GOOD LUCK!