Question

After performing a physical count of inventory at the end of the accounting period, it was discovered that the amount of inventory on hand was less than the accounting records reported. The entry to record this inventory shrinkage includes _____. (Check all that apply.)

a. debit to Cost of Goods Sold
b. debit to Purchase Discounts
c. credit to Cost of Goods Sold
d. credit to Inventory
e. debit to Inventory
f. credit to Purchase Discounts

Answer 1

The entry to record inventory shrinkage involves a debit to Cost of Goods Sold and a credit to Inventory, reflecting the loss of goods that were previously reported as assets but are no longer present.

Step-by-step explanation:

When it is discovered that the actual inventory on hand is less than what the accounting records report, the entry to record this inventory shrinkage includes a debit to Cost of Goods Sold and a credit to Inventory. The correct journal entry to reflect inventory shrinkage would debiting Cost of Goods Sold to reflect the additional costs incurred (loss of inventory), thereby increasing the expense for the period, and crediting Inventory to reduce the asset account to its actual physical count.

Here are the appropriate entries:

• Debit to Cost of Goods Sold
• Credit to Inventory

Purchase Discounts are not relevant in this case, since those apply to the purchasing process and not to inventory shrinkage adjustments. Therefore, 'debit to Purchase Discounts' and 'credit to Purchase Discounts' are incorrect.