The general ledger shows a balance of $67,900 in the Merchandise Inventory account at the end of the period. The physical inventory count shows inventory of $65,300. The adjusting entry includes a:
A)debit to Cost of Goods Sold and a credit to Merchandise Inventory for $2,600.
B)debit to Cost of Goods Sold and a credit to Cash for $2,600.
C)debit to Merchandise Inventory and a credit to Cost of Goods Sold for $2,600.
D)debit to Merchandise Inventory and a credit to Cash for $2,600.

Question

Quizplus · Accepted Answer

The adjusting entry needs to adjust the Merchandise Inventory account to reflect the actual physical inventory count. Since the physical inventory count is lower than the balance in the Merchandise Inventory account, a debit to Cost of Goods Sold and a credit to Merchandise Inventory is needed to lower the balance in Merchandise Inventory by the difference ($2,600). This reflects the cost of the products that were sold or lost but not yet recorded in the accounting system.

The General Ledger Shows a Balance of $67,900 in the Merchandise