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

Question

Quizplus · Accepted Answer

In a perpetual inventory system, the Merchandise Inventory account is continuously updated with each purchase and sale, and any discrepancies between the physical count and the recorded inventory balance must be adjusted with an adjusting entry. Therefore, if the physical count indicates that the Merchandise Inventory account is overstated, an adjusting entry is necessary to correct it.

If a Physical Count of Inventory Indicates That the Merchandise