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Frisco Company's Merchandise Inventory account at year-end has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is ________.
Frisco Company's Merchandise Inventory account at year-end has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is ________.
Final answer:The adjusting entry to record Frisco Company's $215 inventory shrinkage is to debit Inventory Shrinkage Expense and credit Merchandise Inventory for $215, aligning the books with the physical inventory count.Explanation:The adjusting entry to record the $215 of inventory shrinkage for Frisco Company, where the Merchandise Inventory account at year-end has a balance of $62,115 but a physical count reveals only $61,900 of inventory, involves decreasing the Merchandise Inventory account and increasing an expense account (often referred to as Cost of Goods Sold or Inventory Shrinkage Expense). The journal entry would be to debit Inventory Shrinkage Expense for $215 and to credit Merchandise Inventory for $215. This adjustment corrects the inventory balance on the balance sheet to match the actual inventory available and recognizes the loss, or shrinkage, in the company's financial records.This entry is crucial for accurate financial reporting and helps in assessing the true financial position of the company. Inventory shrinkage can result from several factors, including theft, damage, or errors in counting. By making this adjustment, companies ensure that their financial statements reflect a true and fair view of their assets....