The Grove Company uses the perpetual inventory system. Although its inventory records indicated $18,000 in the inventory, a physical count showed only $16,250. Which of the following answers indicates the effect of the necessary write-down entry?

Question

Quizplus · Accepted Answer

The inventory shortage of $1,750 ($18,000 - $16,250) decreases assets (inventory) and increases expenses (cost of goods sold), which deceases net income and equity. It does not affect cash flows.

The Grove Company Uses the Perpetual Inventory System