Final answer:
The statement is false; an increase in Merchandise Inventory is recorded as a debit to the Merchandise Inventory account, showing the company has more assets in the form of inventory at its disposal.
Step-by-step explanation:
If Merchandise Inventory increases from the beginning to the end of the fiscal period, the adjusting entry actually does not include a credit to Merchandise Inventory. Instead, an increase in Merchandise Inventory is recorded as a debit to the Merchandise Inventory account, which represents an asset, and a credit to Accounts Payable or another liability account if the inventory was purchased on credit, or to Cash if it was paid for outright.
If the inventory was manufactured, the credit would be to an inventory production account like Work in Progress or Raw Materials. The recording reflects the acquisition of new inventory that has not yet been sold.