Ashton Company uses the perpetual inventory system.The company's inventory account had a $6,600 balance as of December 31,Year 1.A physical count of inventory shows only $5,900 of merchandise in stock at December 31,Year 1.How will the entry to recognize the missing inventory affect the company's financial statements?

Question

Quizplus · Accepted Answer

The write-off decreases both assets (inventory)and stockholders' equity (retained earnings).The write-off increases expenses {inventory loss (cost of goods sold)} and decreases net income.Cash flow is not affected.

Ashton Company Uses the Perpetual Inventory System