Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615



Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem

Audio Outfitter Inc., which uses a perpetual inventory’ system, experienced a normal inventory shrinkage of $13,675. What accounts would be debited and credited to record the adjustment for the inventory’ shrinkage at the end of the accounting period?

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 inventory shrinkage using the perpetual inventory system.


The following is the adjusting journal entry for inventory shrinkage:

Journal Entry
Date Accounts and Explanation Debit ($) Credit ($)
  Cost of Merchandise Sold 13,675  

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