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3 January, 17:13

BE5-3 Cha Company buys merchandise on account from Wirtz Company. The selling price of the goods is $780, and the cost of the goods is $470. Both companies use perpetual inventory systems. Journalize the transaction on the books of both companies.

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  1. 3 January, 17:22
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    In the books of Wirtz, the selling party, the required entries are

    Debit Accounts receivable $780

    Credit Revenue $780

    Being entries to recognize sales revenue on account

    Debit Cost of sales $470

    Credit Inventory $470

    Being entries to recognize the cost of items sold

    In the books of Cha Company

    Debit Inventory $780

    Credit Accounts payable $780

    Being entries to record cost of inventory purchased

    Step-by-step explanation:

    When a company makes a sale, the effect of such sale is dual in the books of the company being that the company would first recognize revenue and then recognize the cost of items sold.

    To recognize revenue,

    Debit Cash/Accounts receivable

    Credit Revenue

    To record the cost of the item sold

    Debit Cost of sales

    Credit Inventory

    For the party that makes the purchase

    Debit Inventory

    Credit Cash/Accounts payable
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