Q29RQ
Question
Is an adjusting entry needed for inventory shrinkage when using the periodic inventory system? Explain.
Step-by-Step Solution
Verified Answer
Answer
No adjusting entry is passed for the inventory shrinkage.
1Step 1: Meaning of Adjusting Entry
In accounting, adjusting entries are the journal entries passed at the end of an accounting period to adjust the revenues and expenses in the period they occurred. Also, the adjusting entries are recorded after preparing the trial balance.
2Step 2: Adjusting entry for inventory shrinkage
When the periodic inventory system is used, no adjusting entry is passed for the inventory shrinkage. Adjusting entry is not required because inventories are counted physically at the end of an accounting period. The physical count is recorded in the books of accounts under this system.
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