If the actual inventory is greater than the unadjusted balance in Inventory, Cost of Goods Sold will be debited.

Question

Quizplus · Accepted Answer

If the actual inventory is greater than the unadjusted balance in Inventory, it means that the unadjusted balance was understated. In this case, an adjustment should be made to increase the balance in Inventory and decrease the balance in an expense account like Cost of Goods Sold. Therefore, Cost of Goods Sold will be credited (not debited) to correct the understatement.

If the Actual Inventory Is Greater Than the Unadjusted Balance