Question

Suppose the Jim's Jeans Merchandise Inventory Account shows an unadjusted balance of $10,000. On December 31, 2018, the physical count of goods on hand totaled $9,200. To adjust the accounts, Jim's Jeans would make which of the following entries?

Answer 1

Jim's Jeans needs to adjust the Merchandise Inventory account by debiting Cost of Goods Sold and crediting Merchandise Inventory for $800 to reflect the actual physical count of $9,200.

Step-by-step explanation:

The problem refers to adjusting the Merchandise Inventory account of Jim's Jeans to reflect the actual physical inventory. Since the unadjusted balance is $10,000 and the physical count totaled $9,200, there is a discrepancy of $800 ($10,000 - $9,200). To adjust for this, Jim's Jeans must record a loss to account for the missing inventory. The adjusting entry will be to debit Cost of Goods Sold and credit Merchandise Inventory for $800.

The entry would look like the following:

• Debit Cost of Goods Sold: $800
• Credit Merchandise Inventory: $800

This entry decreases the Merchandise Inventory account to match the physical count and recognizes the cost associated with the inventory that is no longer available.