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Account Titles and Explanation Debit Credit Gerish Company Mangus Company (To record sale of merchandise) Gerish Company buys merchandise on account from Mangus Company. The selling price of the goods is $900 and the cost of the goods sold is $590. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

The entry to record the purchase of merchandise on Prior Co,'s books is :

Debit 'Merchandise Inventory' $ 900
Credit 'Accounts Payable' $ 900
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There are two entries to be made on Wood Co's books regarding the sale of goods to Prior Co. :

Debit 'Accounts Receivable' $ 900
Credit 'Sales Revenue' $ 900

Debit 'Cost of Goods Sold' $ 590
Credit 'Merchandise Inventory' $ 590

(The first entry records the revenue from the sale and the receivable.)

(The second entry removes the cost of the goods from the Balance Sheet asset account 'Merchandise Inventory' and transfers that amount to the Income Statement expense account 'Cost of Goods Sold'.)

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