Accounting for Merchandising

business
Objectives:

1.Calculate the cost of merchandise

inventory ending;
2.Calculate the missing inventories;
3.Calculate the cost of goods sold;
4.Prepare a cost of goods sold statement.
Cost of Goods Sold
These are the direct cost or the value of
goods sold during a particular period.

COGS is subtracted from revenue to get the

profit.
Cost of Goods Sold
Net Sales xx
Less: Cost of goods sold (xx)
Gross profit xx
Gross sales xx
Less: Sales return & allowances (xx)
Sales discounts (xx)
Net sales xx
Cost of Goods Sold
Net Sales xx
Less: Cost of goods sold (xx)
Gross profit xx
Gross profit method:
Percentage of sales
Percentage of cost
Cost of Goods Sold
Example: A merchandise was sold at a price of ₱ 135,000.
the mark up based on cost is 35%. How much is the cost
of goods sold?
Net sales – COGS = GP
135,000 – COGS = 0.35(COGS)
135,000 = COGS + 0.35COGS
135,000/1.35 = COGS
100,000 = COGS
Cost of Goods Sold
Example: A merchandise was sold at a price of ₱135,000.
the mark up based on sales is 35%. How much is the cost
of goods sold?
Net sales – COGS = GP
135,000 – COGS = 0.35(Sales)
COGS = 135,000 - 0.35(135,000)
COGS = 135,000 – 47,250
COGS = 87,750
Cost of Goods Sold
Beginning inventory xx
Add: Net Purchase xx
Goods available for sale xx
Less: Ending inventory (xx)
Cost of goods sold xx
Purchases xx
Add: Freight IN xx
Total xx
Less: Purchase return & allowances (xx)
Purchase discount (xx)
Net Purchase xx
Cost of Goods Sold
Example: At the beginning of June, the company has an
inventory of ₱112,000. During the month, the company
purchased merchandise amounting to ₱235,000 and paid
freight of ₱5,000. Before the month end, merchandise
costing ₱14,000 was returned and a ₱ 5,000 discount was
granted by the supplier for early payment. The ending
inventory is ₱72,000. How much is the cost of goods sold?
Cost of Goods Sold
Example: At the beginning of Beginning inventory 112,000
June, the company has a
beginning inventory of ₱112,000.
Add: Net Purchase
During the month, the company Purchases 235,000
purchased merchandise
amounting to ₱235,000 and paid Add: Freight IN 5,000
freight of ₱5,000. Before the Less: Purchase return & allow (14,000)
month end, merchandise costing
₱14,000 was returned and a ₱ Purchase discount (5,000) 221,000
5,000 discount was granted by Goods available for sale 333,000
the supplier for early payment.
The ending inventory is ₱72,000. Less: Ending inventory 72,000
How much is the cost of goods
Cost of goods sold 261,000
sold?
 Name of the Company
Cost of Goods Sold Statement
For the period ended
Example: At the beginning of Beginning inventory ₱112,000
June, the company has a
beginning inventory of ₱112,000. Add: Net Purchase
During the month, the company Purchases ₱ 235,000
purchased merchandise Add: Freight IN 5,000
amounting to ₱235,000 and paid
freight of ₱5,000. Before the Less: Purchase return & allow (14,000)
month end, merchandise costing
Purchase discount (5,000) 221,000
₱14,000 was returned and a ₱
5,000 discount was granted by Goods available for sale 333,000
the supplier for early payment.
The ending inventory is ₱72,000. Less: Ending inventory 72,000
How much is the cost of goods Cost of goods sold ₱ 261,000
sold?
Estimation of Ending inventory
Example: ABC Company estimated the cost of its physical
inventory on March 31 for use in interim financial statement.
The rate of markup on cost is 25%. The inventory on Jan 1 was
₱5,500,000. During the period Jan 1 to March 31, the entity had
purchases of ₱4,300,000, purchase returns of ₱200,000 and
sales of ₱7,500,000. What is the estimated cost of inventory on
March 31?
Sales 125% Cost of goods sold (7,500,000/1.25)
Cost of sale 100% = 6,000,000
Mark up 25%
Estimation of Ending inventory
Example: ABC Company estimated the cost of its physical inventory on March 31 for
use in interim financial statement. The rate of markup on cost is 25%. The inventory
on Jan 1 was ₱5,500,000. During the period Jan 1 to March 31, the entity had
purchases of ₱4,300,000, purchase returns of ₱200,000 and sales of ₱7,500,000. What
is the estimated cost of inventory on March 31?

Beginning inventory 5,500,000

Net Purchases:
Purchases 4,300,000
Less: Purchase returns (200,000) 4,100,000
Total goods available for sale 9,600,000
Cost of goods sold (7,500,000/1.25) (6,000,000)
Estimated ending inventory 3,600,000
Try this!
Example: Afire destroyed ABM Company’s inventory on October
31. on Jan 1, the inventory had a cost of ₱2,500,000. During
the period Jan 1 to Oct 31, the entity had net purchases of
₱7,500,000 and net sales of ₱15,000,000. Undamaged inventory
at the date of fire had a cost of ₱150,000. the mark-up on cost
is 66 2/3%. What was the cost of inventory destroyed by fire?
Beginning inventory 2,500,000
Net purchase 7,500,000
Cost of goods available for sale 10,000,000
Less: Cost of goods sold (15,000,000/1.6667) 9,000,000
Ending inventory 1,000,000
Undamaged inventory 150,000
Cost of inventory destroyed by fire 850,000
 Cost of Goods Sold Cost of Goods Unsold
METHODS OF COSTING INVENTORY
FIFO LIFO WEIGHTED AVERAGE
First-in First-out Last-in First-out FEFO

First purchased, Last purchased, First expire First

sold first sold first out
Costing
Costing of COGS Costing of COGS
Goods available for sale
from first in price from last in price
Divide by total units
available
Cost of Goods Sold Cost of Goods Unsold
METHODS OF COSTING INVENTORY

WEIGHTED AVERAGE

Cost of Goods available for sale ₱xxx

Divide by total units available for sale xx units
Cost per unit ₱xxx
Multiply by units sold xx units
Cost of goods sold ₱xxx
Cost of Goods Sold Cost of Goods Unsold
Example: Transactions for the month of June were:
PURCHASES SALES
No. of Cost per No. of Price per
Date Date
units unit units unit
Jun-01Balance 400 3.20 Jun-02 300 5.50
3 1,100 3.10 6 800 5.50
7 600 3.30 9 500 5.50
15 900 3.40 10 200 6.00
22 250 3.50 18 700 6.00
25 150 6.00
Assuming that periodic inventory record are kept in pesos,
how much is the cost of goods sold using:
a. FIFO
b. LIFO
c. Weighted Average
Example: Transactions for the month of June were:
PURCHASES SALES
No. of Cost per No. of Price per
Date Date
units unit units unit
Jun-01Balance 400 3.20 Jun-02 300 5.50
3 1,100 3.10 6 800 5.50
7 600 3.30 9 500 5.50
15 900 3.40 10 200 6.00
22 250 3.50 18 700 6.00
25 150 6.00

3,250 600 2,650 total units sold

total units
available total units unsold
for sale Merchandise inventory end
Example: Transactions for the month of June were:
PURCHASES
No. of Cost per
Date FIFO COGS UNSOLD End invty
units unit
Jun-01 Balance 400 3.20 x 400 1,280
3 1,100 3.10 x 1,100 3,410
7 600 3.30 x 600 1,980
15 900 3.40 x 550 1,870 x 350 1,190
22 250 3.50 x 250 875
2,650 8,540 600 2,065

Cost of goods sold = ₱8,540 → COGS Statement

Ending inventory = ₱2,065 → Balance Sheet

FIFO METHOD
Example: Transactions for the month of June were:
PURCHASES
No. of Cost per
Date LIFO COGS UNSOLD End invty
units unit
Jun-01 Balance 400 3.20 x 400 1,280
3 1,100 3.10 x 900 2,790 x 200 620
7 600 3.30 x 600 1,980
15 900 3.40 x 900 3,060
22 250 3.50 x 250 875
2,650 8,705 600 1,900

Cost of goods sold = ₱8,705 → COGS Statement

Ending inventory = ₱1,900 → Balance Sheet

LIFO METHOD
Example: Transactions for the month of June were:
PURCHASES
Date
No. of Cost per TOTAL Total cost 10,605
units unit COST Divide by total units
Jun-01Balance 400 3.20 1,280
available for sale 3,250
3 1,100 3.10 3,410
7 600 3.30 1,980 Unit cost 3.26
15 900 3.40 3,060 Multiply by no. of units
22 250 3.50 875 sold 2,650
10,605 COST OF GOODS SOLD 8,647.15

WEIGHTED Unit cost 3.26

AVERAGE Multiply by no. of units
unsold 600
METHOD
ENDING INVENTORY 1,957.85
Try this!
Transactions for the months of May are as follows:
PURCHASES SALES
No. of Cost per No. of Price per
Date Date
units unit units unit
May-01Balance 450 15.20 May-02 300 25.50
5 950 14.10 6 800 25.50
12 1,600 12.30 9 100 25.50
18 1,000 13.40 13 1,200 27.00
22 2,150 10.50 18 700 27.00
25 650 17.00 25 1,850 27.00
Periodic inventory record are kept in pesos, how much is the cost of
goods sold using:
a. FIFO
b. LIFO
c. Weighted Average
Do you have any questions?
 In the world of accounting,
success is not measured by
numbers alone, but by the
integrity, precision, and dedication
we bring to every balance sheet
and financial statement.
 This is your ma’am Gali,
always serving you the best
and loving you the most.
See you next school year!

Congratulations and
Goodluck!
Finish your activity 14 until
next week Wednesday,
June 7, 2023