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Horngren'S Financial And Managerial Accounting
Found in: Page 295

Short Answer

Is an adjusting entry needed for inventory shrinkage when using the periodic inventory system? Explain.

Answer

No adjusting entry is passed for the inventory shrinkage.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Adjusting Entry

In accounting, adjusting entries are the journal entries passed at the end of an accounting period to adjust the revenues and expenses in the period they occurred. Also, the adjusting entries are recorded after preparing the trial balance.

Step 2: Adjusting entry for inventory shrinkage

When the periodic inventory system is used, no adjusting entry is passed for the inventory shrinkage. Adjusting entry is not required because inventories are counted physically at the end of an accounting period. The physical count is recorded in the books of accounts under this system.

Most popular questions for Business-studies Textbooks

Journalize the following transactions that occurred in January 2018 for Sylvia’s Amusements. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Sylvia estimates sales returns at the end of each month.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, $7,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of $100 on January 4 purchase.

8 Returned half the inventory purchased on January 4 from Vanderbilt Company.

10 Sold merchandise inventory for cash, $1,600. Cost of goods, $640. FOB destination.

11 Sold merchandise inventory to Graceland Corporation, $10,800, on account, terms of 1/10, n/EOM. Cost of goods, $5,400. FOB shipping point.

12 Paid freight bill of $60 on January 10 sale.

13 Sold merchandise inventory to Cabbell Company, $9,500, on account, terms of n/45. Cost of goods, $5,225. FOB shipping point.

14 Paid the amount owed on account from January 4, less return and discount.

17 Received defective inventory as a sales return from the January 13 sale, $600. Cost of goods, $300.

18 Purchased inventory of $4,600 on account from Roberts Corporation. Payment terms were 3/10, n/30, FOB destination.

20 Received cash from Graceland Corporation, less discount.

26 Paid amount owed on account from January 18, less discount.

28 Received cash from Cabbell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, $11,600, FOB shipping point. Freight in paid to shipping company, $240.

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