# Inventory shrinkage Castle Furnishings Company's perpetual inventory records indicate that $675,400 of merchandise should be on hand on November 30, 2016. The physical inventory indicates that$663,800 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Castle Furnishings Company for the year ended November 30, 2016. Assume that the Inventory shrinkage is a normal amount.

### Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

### Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

#### Solutions

Chapter
Section
Chapter 5, Problem 5.6APE
Textbook Problem

## Inventory shrinkageCastle Furnishings Company's perpetual inventory records indicate that $675,400 of merchandise should be on hand on November 30, 2016. The physical inventory indicates that$663,800 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Castle Furnishings Company for the year ended November 30, 2016. Assume that the Inventory shrinkage is a normal amount.

Expert Solution
To determine

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 Record: The adjusting entry for inventory shrinkage.

### Explanation of Solution

Explanation

• Cost of merchandise sold is an expense account and it decreases the value of equity by $11,600. Therefore, debit cost of merchandise sold account with$11,600.
• Merchandise inventory is an asset and it is decreased by $11,600. Therefore, credit merchandise inventory account with$11,600.

Working Note:

Calculate the inventory shrinkage.

unadjusted merchandise inventory = $675,400 Physical count of inventory =$663,800

Inventory�

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