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A physical count under the perpetual system reveals $300 of inventory shrinkage. What entry adjusts the records?
ADebit Cost of Sales $300; credit Merchandise Inventory $300
BDebit Merchandise Inventory $300; credit Cost of Sales $300
CDebit Shrinkage Expense $300; credit Accounts Payable $300
DDebit Merchandise Inventory $300; credit Cash $300
Answer & Solution
Correct answer: A. Debit Cost of Sales $300; credit Merchandise Inventory $300
1. Shrinkage means actual counted inventory is less than the recorded balance, so the asset must be reduced.
2. Merchandise Inventory is credited $300 to bring records down to the counted amount.
3. The lost cost is charged to Cost of Sales (debit $300), the same accounts as a sale but with no matching revenue.
4. Option B reverses the entry; there is no separate Shrinkage Expense here, and no cash or payable is involved.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.5.1 "Inventory Shrinkage", p.107_