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Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
ISBN: 9781337398169

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BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
ISBN: 9781337398169
Textbook Problem

Assume that Audio Outfitter Inc. in Discussion Question 9 experienced an abnormal inventory shrinkage of $98,600. Audio Outfitter has decided to record the abnormal inventory shrinkage so that it would be separately disclosed on the income statement. What account would be debited for the abnormal inventory shrinkage?

To determine

Perpetual Inventory System: In this system record of inventory is maintained in a computerized manner as and when the transaction is made. The running records are maintained for inventory and cost of goods sold. The record shows the accurate position of inventory at any given point of time during the financial year.

Inventory Shrinkage: It represents the loss of inventory. In other words, it refers to the difference between the amount of inventory shown in the accounting records and the actual inventory. The difference indicates the issues with the inventory caused due to lost, theft, clerical errors, damaged goods or spoilage.

To State: Which account is debited when recording abnormal inventory shrinkage using the perpetual inventory system.

Explanation

Explanation

  • Loss from merchandise inventory shrinkage is an expense account and it decreases the value of equity by $98,600. Therefore, debit the account with $98,600...

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