Accounting Question - Adjusting entries?

Question

What would be the correct adjusting entry if you needed to credit merchandise inventory? I mean, say you have 120,000 on paper but a physical count reveals only 110,000. Where does that other 10,000 go? Miscellaneous selling expense?

Answer 1

Answerer 1 is correct if you're using the perpetual inventory system and Answerer 2 is correct if you're using the periodic inventory system. There are differences between the 2, but the main ones are that under Periodic, you have purchases accounts, but your merchandise inventory a/c is not updated throughout the year. When you make a sale you only take up the sale entries, but there is no COGS a/c for you to update. Under Perpetual, the inventory a/c is updated continuously with items bought and sold. You also have a COGS a/c updated each time you make a sale.

Your question mentioned merchandise inventory, so it's more likely that you are on the perpetual system, so your entries are indeed
Dr COGS 10,000
Cr Merchandise inventory 10,000

The full description of the 2 systems are as follows:

A. Periodic inventory system. Under this system the amount appearing in the Inventory account is not updated when purchases of merchandise are made from suppliers. Rather, the Inventory account is commonly updated or adjusted only once—at the end of the year. During the year the Inventory account will likely show only the cost of inventory at the end of the previous year.

Under the periodic inventory system, purchases of merchandise are recorded in one or more Purchases accounts. At the end of the year the Purchases account(s) are closed and the Inventory account is adjusted to equal the cost of the merchandise actually on hand at the end of the year. Under the periodic system there is no Cost of Goods Sold account to be updated when a sale of merchandise occurs.

In short, under the periodic inventory system there is no way to tell from the general ledger accounts the amount of inventory or the cost of goods sold.

B. Perpetual inventory system. Under this system the Inventory account is continuously updated. The Inventory account is increased with the cost of merchandise purchased from suppliers and it is reduced by the cost of merchandise that has been sold to customers. (The Purchases account(s) do not exist.)

Under the perpetual system there is a Cost of Goods Sold account that is debited at the time of each sale for the cost of the merchandise that was sold. Under the perpetual system a sale of merchandise will result in two journal entries: one to record the sale and the cash or accounts receivable, and one to reduce inventory and to increase cost of goods sold.

Answer 2

Merchandise Inventory Adjusting Entry

Answer 3

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RE:
Accounting Question - Adjusting entries?
What would be the correct adjusting entry if you needed to credit merchandise inventory? I mean, say you have 120,000 on paper but a physical count reveals only 110,000. Where does that other 10,000 go? Miscellaneous selling expense?

Answer 4

No entry is needed for "Shrinkage". On your income statement you have beginning inventory plus purchases minus ending inventory to get cost of sales so you don't need to account for inventory that has gone missing from spoilage, theft, or because it was sold. You profit is already smaller because you have less ending inventory.

Answer 5

Cr. Inventory
Dr. Cost of Goods Sold

Since the inventory is missing, you need to write it off to cost of goods sold on your income statement. It shouldn't be included in selling expenses.

Answer 6

very interesting question