Q8SE - Horngren'S Financial And Managerial Accounting

Question

Jeana’s Furniture’s unadjusted Merchandise Inventory account at year-end is \(69,000. The physical count of inventory came up with a total of \)67,600. Journalize the adjusting entry needed to account for inventory shrinkage.

 

Step-by-Step Solution

Answer

Answer

Inventory shrinkage expense for the company is $1,400.

Step 1: Meaning of Inventory Shrinkage

In accounting, inventory shrinkage refers to the loss arising from the differences in the actual inventory balances and reported inventories in the books of accounts. Such a loss is reported in the books of accounts of all the business entities to reflect the accurate inventory balances.

Step 2: Recording of inventory shrinkage

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Inventory shrinkage expenses	1,400
	Merchandise inventory		1,400
	(To record the inventory shrinkage)

Step 3: Computation of inventory shrinkage expenses

$\begin{array}{rcl}\mathrm{Inventory} \mathrm{shrinkage} \mathrm{expenses}& =& \mathrm{Merchandise} \mathrm{inventory} \mathrm{at} \mathrm{the} \mathrm{end} \mathrm{of} \mathrm{the} \mathrm{year} -\mathrm{Physical} \mathrm{count} \mathrm{of} \mathrm{inventory}\\ & =& \$69,000-\$67,000\\ & =& \$1,400\end{array}$