Concord Company buys merchandise on account from Riverbed Company for $760. Concord sells the goods to Ellis for $1,152 cash. Use a tabular summary to record the transactions for Concord Company using a perpetual inventory system. Include margin explanations for the changes in revenues and expenses.
Question
Concord Company buys merchandise on account from Riverbed Company for 1,152 cash. Use a tabular summary to record the transactions for Concord Company using a perpetual inventory system. Include margin explanations for the changes in revenues and expenses.
Solution
To record the transactions for Concord Company using a perpetual inventory system, we will create a tabular summary.
First, let's record the purchase of merchandise from Riverbed Company on account:
| Date | Account | Debit ($) | Credit ($) |
|---|---|---|---|
| [Date] | Merchandise | 760 | |
| Accounts Payable | 760 |
Explanation: The merchandise is debited to increase the inventory value, and the accounts payable is credited to show the liability owed to Riverbed Company.
Next, let's record the sale of goods to Ellis for cash:
| Date | Account | Debit ($) | Credit ($) |
|---|---|---|---|
| [Date] | Cash | 1,152 | |
| Sales Revenue | 1,152 | ||
| Cost of Goods Sold | 760 | ||
| Merchandise Inventory | 760 |
Explanation: The cash account is credited to show the increase in cash from the sale, and the sales revenue account is credited to record the revenue earned. The cost of goods sold account is debited to recognize the expense associated with the sale, and the merchandise inventory account is credited to reduce the inventory value.
The changes in revenues and expenses are as follows:
- Revenues: The sales revenue increases by $1,152 from the sale to Ellis.
- Expenses: The cost of goods sold increases by $760 to account for the cost of the merchandise sold.
Please note that the [Date] should be replaced with the actual date of the transaction.
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