Mary Monitor,CPA,noted that ABC Co.received goods prior to year-end that were included in physical inventory but had not been recorded.In this case,which of the following adjustments should be made?
A)Debit Purchases/credit Cost of Goods Sold.
B)None.
C)Debit Inventory/credit Accounts Payable.
D)Debit Cost of Goods Sold/credit Accounts Payable.

Question

Quizplus · Accepted Answer

The adjustment required is to recognize the inventory that was received but not recorded. To do this, we need to debit Inventory and credit Accounts Payable. This will increase Inventory by the amount of the goods received and decrease the liability of Accounts Payable, as these goods have now been recognized as received. Option A would increase Purchases and decrease Cost of Goods Sold, which is not appropriate in this situation. Option B, None, is not correct as there is a need for adjustment. Option D would decrease Accounts Payable and increase Cost of Goods Sold, which is not appropriate either as we want to increase Inventory, not decrease it.

Mary Monitor,CPA,noted That ABC Co