If shrinkage is found for $500,an adjusting entry would be made as follows:

Question

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Shrinkage refers to a loss of inventory due to theft, damage, or loss. The cost of this loss should be recognized in the Cost of Goods Sold account, as it is an expense related to the sale of goods. Therefore, the correct adjusting entry would be to debit Cost of Goods Sold for $500 and credit Inventory for $500. This will decrease the value of Inventory on the balance sheet and increase the expense amount on the income statement, resulting in a more accurate representation of the company's financial position. Options A and B are incorrect because they both credit a revenue account (Sales Returns and Allowances or Cost of Goods Sold) rather than debiting it. Option D is also incorrect because it credits a revenue account and debits an asset account, which is the opposite of what is required.

If Shrinkage Is Found for $500,an Adjusting Entry Would Be