If a physical count of inventory indicates that the Merchandise Inventory account is overstated,an adjusting entry is required to record the difference.

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If the physical count of inventory indicates that the Merchandise Inventory account is overstated, an adjusting entry is necessary to reduce the account balance to the correct level. This adjusting entry ensures that the balance sheet accurately represents the true value of the inventory on hand.

If a Physical Count of Inventory Indicates That the Merchandise