**Inventory Journal Entries and Inventory Shrinkage****Understanding the Problem:**Assume that a perpetual inventory system is used, and records indicate that $191,400 of merchandise should be on hand on March 31, 20Y4. However, the physical inventory indicates that only $185,625 of merchandise is actually on hand. To accurately reflect inventory shrinkage in the journal entry, follow these steps.**Journal Entry Options:**The image presents several options for journal entries that address inventory shrinkage. Below is an explanation of each of the options presented:### Option 1:**Date: Mar. 31**| Description | P.REF. | Debit | Credit ||--------------------------------|--------|--------|---------|| Merchandise Inventory | | $5,575 | || Cost of Merchandise Sold | | | $5,575 |*Explanation: This entry debits Merchandise Inventory and credits Cost of Merchandise Sold.*### Option 2:**Date: Mar. 31**| Description | P.REF. | Debit | Credit ||--------------------------------|--------|--------|---------|| Cost of Merchandise Sold | | $5,575 | || Merchandise Inventory | | | $5,575 |*Explanation: This entry debits Cost of Merchandise Sold and credits Merchandise Inventory.*### Option 3:**Date: Mar. 31**| Description | P.REF. | Debit | Credit ||--------------------------------|--------|--------|---------|| Cost of Merchandise Sold | | $11,550| || Merchandise Inventory | | | $11,550 |*Explanation: This entry debits Cost of Merchandise Sold and credits Merchandise Inventory for the amount of shrinkage.*### Option 4:**Date: Mar. 31**| Description | P.REF. | Debit | Credit ||--------------------------------|--------|--------|---------|| Cash | | $11,550| || Sales | | | $11,550 |*Explanation: This entry debits Cash and credits Sales.***Conclusion:**To correctly record the inventory shrinkage in the journal entry, the appropriate entry needs to address the discrepancy between the recorded inventory amount and the actual physical inventory on hand. The correct entry will accurately reflect the change in inventory levels and the associated cost of

Amount of inventory Shrinkage = Inventory as per records - Physical count inventory = $191,400 -…

Assume that a perpetual inventory system is used and the records indicate that$191,400 of merchandise should be on hand on March 31, 20Y4. The physical inventory indicates that $185,625 of merchandise is actually on hand. Select the entry below that is needed to correctly journalize the inventory shrinkage. DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Merchandise Inventory $5,575 Cost of Merchandise Sold $5,575 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cost of Merchandise Sold $5,575 Merchandise Inventory $5,575 Mar. 31 Cost of Merchandise Sold $11,550 Merchandise Inventory $11,550 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cash $11,550 Sales $11,550

Assume that a perpetual inventory system is used and the records indicate that$191,400 of merchandise should be on hand on March 31, 20Y4. The physical inventory indicates that $185,625 of merchandise is actually on hand. Select the entry below that is needed to correctly journalize the inventory shrinkage. DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Merchandise Inventory $5,575 Cost of Merchandise Sold $5,575 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cost of Merchandise Sold $5,575 Merchandise Inventory $5,575 Mar. 31 Cost of Merchandise Sold $11,550 Merchandise Inventory $11,550 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cash $11,550 Sales $11,550

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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