College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756



College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

JOURNALIZE ADJUSTING ENTRY FOR INVENTORY SHRINKAGE: PERPETUAL INVENTORY SYSTEM On December 31, Anup Enterprises completed a physical count of its inventory. Although the merchandise inventory account shows a balance of $350,000, the physical count comes to $325,000. Prepare the appropriate adjusting entry under the perpetual inventory system.

To determine

Journalize the adjusting entry for inventory shrinkage.


Perpetual inventory system: The method or system of maintaining, recording, and adjusting the inventory perpetually throughout the year, is referred to as perpetual inventory system.

Inventory shrinkage:

Any errors or losses of merchandise due to breakage, theft or spoilage are called as inventory shrinkage.

Inventory short and over:

The difference between the “physical count and the amount of balance” shown in the perpetual inventory records is adjusted through inventory short and over account.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses...

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