A company uses the perpetual inventory system.The inventory account balance is $50,000.An actual count of inventory reveals that actual inventory is $43,000.Which of the following would be included in the required adjusting entry?
A) A $43,000 credit to Inventory would be required.
B) A $50,000 debit to Cost of goods sold would be required.
C) A $7,000 credit to Cost of goods sold would be required.
D) A $7,000 credit to Inventory would be required.

Question

Quizplus · Accepted Answer

The actual inventory is less than what is recorded in the accounting system, so a credit entry is needed to reduce the inventory account balance to the actual level of $43,000. Therefore, a $7,000 credit to Inventory is required to adjust the account. Additionally, since the inventory balance is decreasing, a corresponding increase in the Cost of goods sold (COGS) account is also required. The entry for COGS will be a $7,000 debit, which means that option C is incorrect. Option B is also incorrect because it suggests debiting COGS by the entire amount of $50,000, which would be incorrect since only a $7,000 adjustment is required.

A Company Uses the Perpetual Inventory System