The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.

Question

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Inventory shrinkage occurs when physical inventory is less than the inventory recorded in the accounting system. This means that some of the inventory has been lost, stolen or damaged. The adjusting entry to record inventory shrinkage would decrease the inventory balance and increase the cost of merchandise sold. Therefore, a debit to Cost of Merchandise Sold would be required.

The Adjusting Entry to Record Inventory Shrinkage Would Generally Include