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

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If the physical count shows that the Merchandise Inventory account is overstated, it means that the balance in the account is higher than the actual value of the inventory on hand. In this case, an adjusting entry is required to decrease the balance in the Merchandise Inventory account and record the difference as a loss or expense.

If a Physical Count of Inventory Indicates That the Merchandise