Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820,but a physical count reveals that only $90,450 of inventory exists.The adjusting entry to record this $1,370 of inventory shrinkage is:

Question

Quizplus · Accepted Answer

The adjusting entry for inventory shrinkage is to debit Cost of Goods Sold and credit Merchandise Inventory. The difference between the actual physical count and the balance in the Merchandise Inventory account represents the amount of inventory shrinkage, which in this case is $1,370. Therefore, the entry would be: 
Cost of Goods Sold     1,370
Merchandise Inventory     1,370
The correct option is C.

Zenith Company's Merchandise Inventory Account at Year-End Has a Balance