MARIST BROTHERS
NOTRE DAME OF DADIANGAS UNIVERSITY
Technical-Vocational Programs
Marist Avenue
General Santos City 9500
P.O. Box 100
Cost of Goods Sold- (COGS) is the cost of acquiring or manufacturing the products that a
company sells during a period.
Cost of goods sold is also referred to as “cost of sales.”
Cost of goods sold Formula:
ABC Company
Statement of Cost of Goods Sold
For the month ended June 30, 2015
Merchandise Inventory, June 1, 2015 P 23,000
Add: Purchases P 350,000
Purchase Returns and Allowances (60,000)
Purchase discounts ( 8,000)
Net Purchases P 282,000
Freight in 7,000
Cost of goods purchased 289,000
Merchandise available for sale P 312,000
Less: Merchandise Inventory, June 30, 2015 28,000
Cost of goods sold P 284,000
What is a Perpetual Inventory System?
A perpetual inventory system is a method of accounting for the increase or decrease
in inventory immediately following a sale or purchase. This system keeps continuous track of
inventory balances and provides complete details of changes in inventory through immediate
reporting.
It shows all changes in the levels of inventory in the “Inventory” account.
Contact No.: 09087171912
FB Acct: @NDDUTechVocPrograms
Assume a Perpetual Inventory System
1. Feb. 01, 2016- Purchased merchandise for cash P 40,000.
2. Feb. 02 – Purchased merchandise on account from ABC Co., P 14,500 terms: 2/10,
n/30.
3. Feb. 04- Paid freight on Feb. 02 purchase, P 300.
4. Feb 05- Sold merchandise on account P 15,000, FOB Destination, terms: 2/10,
n/30. The cost of merchandise sold was P 12,300.
5. Feb. 06-Returned defective inventory to ABC Co., P 900.
6. Feb. 10- Paid ABC Co.
Date
Account
F
Debit
Feb. 01,
2016
Merchandise Inventory
Cash
To record purchase of
merchandise
115
101
P 40,000
Date
Account
F
Debit
Feb. 02,
2016
Merchandise Inventory
Accounts Payable-ABC
To record purchase of
merchandise on account.
115
201
P 14,500
Date
Account
F
Debit
Feb. 04,
2016
Merchandise Inventory
Cash
To record freight in.
115
101
P 300
Date
Account
F
Debit
Feb. 04,
2016
Feb. 04,
2016
Accounts Receivable
Sales
To record sales on account.
#
Cost of goods sold
Merchandise inventory
To record sold merchandise.
105
401
501
115
P 15,000
12,300
Date
Account
F
Debit
Feb. 06,
2016
Accounts Payable-ABC
Merchandise Inventory
To record merchandise
return.
201
115
P 900
Date
Account
F
Debit
Feb. 10,
Accounts Payable-ABC
201
P 13,600
7. Feb. 11- Made refund to cash customers for defective merchandise, P 550.
8. Feb. 12- Collected Feb. 05 sales.
Periodic vs Perpetual
Transactions
Periodic
Perpetual
Purchase merchandise on
cash
Purchases xx
Cash xx
To record purchase
merchandise.
Merchandise Inventory xx
Cash xx
To record purchase merchandise.
Purchase merchandise on
credit / on account
Purchases xx
Accounts payable xx
To record purchase
merchandise on account.
Merchandise Inventory xx
Accounts Payable xx
To record purchase merchandise on
account.
Paid freight in
Freight in xx
Cash xx
To record freight in.
Merchandise Inventory xx
Cash xx
To record freight in.
Merchandise returned on
account
Accounts Payable xx
Purchase returns and
Allowances xx
To record merchandise return.
Accounts Payable xx
Merchandise Inventory xx
To record merchandise return.
Payment to supplier /
creditor with discount
Accounts Payable xx
Purchase discount xx
Cash xx
To record payment with
purchase discount.
Accounts Payable xx
Merchandise Inventory xx
Cash xx
To record payment with purchase
discount.
Sales merchandise on cash
Cash xx
Sales xx
To record sold merchandise.
( only one entry )
Cash xx
Sales xx
To record sold merchandise.
#
Cost of goods sold xx
Merchandise inventory xx
2016
Merchandise Inventory
Cash
To record payment of
account.
115
101
Date
Account
F
Debit
Feb. 11,
2016
Sales Returns and
Allowances
Cash
To record sales return.
401
101
P 550
Date
Account
F
Debit
Feb. 12,
2016
Cash
Sales discounts
Accounts Receivable
To record collection with
discount.
101
410
105
P 14,700
300
To record sold merchandise.
( two entries )
Sales merchandise on
account
Accounts Receivable xx
Sales xx
To record sold merchandise on
account.
( only one entry )
Accounts Receivable xx
Sales xx
To record sold merchandise on
account. #
Cost of goods sold xx
Merchandise inventory xx
To record sold merchandise on
account. ( two entries )
Periodic
Perpetual
Cash refund to customer for
defective merchandise
Sales returns and
Allowances xx
Cash xx
To record sales return.
Sales returns and
Allowances xx
Cash xx
To record sales return.
Returned defective
merchandise by customer
on account
Sales Returns xx
Accounts Receivable xx
To record returned defective
merchandise.
( one entry only )
Sales Returns xx
Accounts Receivable xx
To record returned defective
merchandise. #
Merchandise Inventory xx
Cost of goods sold xx
To record returned defective
merchandise.
( two entries )
Collection with discount
Cash xx
Sales discount xx
Accounts Receivable xx
To record collection with
discount.
Cash xx
Sales discount xx
Accounts Receivable xx
To record collection with discount.
Practical Exercises:
Journalize the following transactions.
Des Pacito Company
Chart of Accounts
Use for Journalization and Posting to the ledger:
100 ASSETS 400 INCOME
101 CASH 401 SALES
105 ACCOUNTS RECEIVABLE 405 SALES RETURNS AND
ALLOWANCES
115 MERCHANDISE INVENTORY 410 SALES DISCOUNTS
120 SUPPLIES 500 EXPENSES
150 EQUIPMENT 501 COST OF GOODS SOLD
200 LIABILITIES
201 ACCOUNTS PAYABLE 503 ADVERTISING EXPENSE
202 NOTES PAYABLE 506 FREIGHT OUT
300 EQUITY 510 RENT EXPENSE
301 PACITO, CAPITAL 530 SALARIES
302 PACITO, DRAWING 540 UTILITIES
601 INCOME SUMMARY
2014
May 1 The Des Pacito Company was registered as a single proprietorship
with the Department of Trade and Industry, Des Pacito invested P 46,000.
3 Purchased equipment for P 15,000 cash.
3 Purchased merchandise on account from ABC Co., P 23,900 terms:
2/10, n/30
3 Bought office supplies on cash basis for P 900.
4 Sold merchandise on account P 18,300, FOB Destination, terms: 2/10,
n/30. The cost of merchandise sold was P 12,400.
5 Paid freight on May 04 sales, P 600
6 Received credit from ABC Co. for merchandise returned P 900.
11 Paid ABC Co.
13 Collected May 4 sales.
14 Bought merchandise on cash basis for P 12,900.
15 Salaries paid P 1,200.
16 Borrowed money from BPI, signed a promissory note P 12,000.
17 Received refund from a supplier cash purchase of May 14, P 800.
18 Bought merchandise from XYZ Co., P 10,400, FOB Shipping point,
terms: 2/10, n/30.
20 Paid freight on May 18 purchase, P 650.
23 Sold merchandise for P 17,500. The merchandise sold had a cost of
P 12,500.
26 Bought merchandise for cash, P 12,100.
27 Paid XYZ Co. on the May 18 purchase, P 5,000. No discount allowed on
partial payment.
28 Des Pacito got cash from the business, P 1,200.
29 Made refund to cash customers for defective merchandise, P 700.
30 Sold merchandise on account, P 10,600, n/30. Cost of the merchandise sold is P
7,900.
30 Paid the following: advertising P 1,000, Utilities, P 700, Rent P 1,200,
salaries P 1,000.
NAME:__________________________________ DATE:______________________