Question

Frisbee Hardware uses a perpetual inventory system. At year-end, the Inventory account

balance of $250,000, but a physical count shows that the merchandise on hand has a cost of


$246,000.

Answer 1

Explanation:

Closing inventory at the end of the year,

Stock Acc Dr is $250000

to Trading Acc $250000

But the physical count shows a cost of $246000 at hand

$250000 - $246000 = $4000

Trading Acc Dr $4000

to Stock Acc $4000

Lost of stock at physical count is charged by trading account.

Answer 2

Dr. Cost of Goods Sold $4,000

Cr. Inventory $4,000

Explanation:

As the counted inventory is less than the balance of inventory. So, Inventory shortage of $4,000 ($250,000 - $246,000) will need to be adjusted. It will be debited to cost of goods sold account as the cost. on the other hand the Inventory balance will be reduced by the same value with credit entry. After the adjustment the shortage will be charged to the cost of sales of that period.