When preparing the worksheet for a merchandising business using the perpetual inventory system,the Merchandise Inventory account must be adjusted based on a physical count due to inventory shrinkage.

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The perpetual inventory system maintains a real-time record of inventory levels, but it is still important to perform periodic physical counts to ensure that the recorded levels match the actual inventory on hand. Any inventory shrinkage (losses due to theft, damage, or other reasons) should be reflected in an adjustment to the Merchandise Inventory account.

When Preparing the Worksheet for a Merchandising Business Using the Perpetual