Q5-4TI - Horngren'S Financial And Managerial Accounting

Question

Click Computers’ Merchandise Inventory account at year-end is showing a balance of \(43,000. The physical count of inventory came up with \)42,500. Journalize the adjusting entry needed to account for the inventory shrinkage. The company uses the perpetual inventory system.

Step-by-Step Solution

Answer

The total debit and credit of the journal are $500.

Meaning of Inventory Shrinkage

Inventory shrinkage refers to the loss of inventory for a business entity arising from theft, administrative error, and fraud. It represents the difference between actual inventory and inventory recorded in the books.

Preparation of journal entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Inventory shrinkage expenses	500
	Merchandise inventory		500
	(To record the adjustment for inventory shrinkage)