Giovanni campany buys merchandise on account from Gordon campany. The selling price of the good is 780 birr ,and the cost of good is 560 birr. Both campanies use perpetual inventory system. Journalize the transaction on the book of both campanies.
Giovanni Company's Journal:
Date Account Title & Explanation Debit Credit
------------------------------------------------------------------------
Inventory Acquisition 780
Accounts Payable 780
(To record the acquisition of assets from Gordon's Company on account)
Gordon Company's Journal:
Date Account Title & Explanation Debit Credit
------------------------------------------------------------------------
Accounts Receivable 780
Sales Revenue 780
(To record the sale of merchandise to Giovanni's Company on account)
Cost of Goods Sold 560
Inventory 560
(To record the cost of the sold inventory)
To journalize the transaction on the books of both companies, you will need to record the sale and purchase of merchandise on account.
Journal entry for Giovanni Campany (Buyer):
Date: [Date of the transaction]
1. Debit: Merchandise Inventory - [Increase in inventory value]
Credit: Accounts Payable - Gordon Campany - [Increase in liability]
- In this entry, you will increase the value of Merchandise Inventory to reflect the purchase of goods.
- Accounts Payable is credited to reflect the liability created by purchasing goods on account from Gordon Campany.
Journal entry for Gordon Campany (Seller):
Date: [Date of the transaction]
1. Debit: Accounts Receivable - Giovanni Campany - [Increase in asset]
Credit: Sales - [Increase in revenue]
Credit: Cost of Goods Sold - [Increase in expense]
Credit: Merchandise Inventory - [Decrease in inventory value]
- In this entry, you will debit Accounts Receivable to reflect an increase in assets due to the sale made on account to Giovanni Campany.
- Sales is credited to record the increase in revenue.
- Cost of Goods Sold is credited to account for the cost associated with selling the goods.
- Merchandise Inventory is credited to reflect the decrease in inventory value after the sale.
Please note that you need to ensure that the amounts mentioned are based on the specific transaction, and you may need to adjust the accounts and amounts accordingly.