Question

Frisbee Hardware uses a perpetual inventory system. At year-end, the Inventory account has a balance of $250,000, but a physical count shows that the merchandise on hand has a cost of only $246,000.
a. Explain the probable reason(s) for this discrepancy.
b. Prepare the journal entry required in this situation.
c. Indicate all the accounting records to which your journal entry in part b should be posted.​

Answer 1

Answer:

Frisbee Hardware uses a perpetual inventory system. At year-end, the Inventory account has a balance of $250,000, but a physical count shows that the merchandise on hand has a cost of only $246,000.

a. Explain the probable reason(s) for this discrepancy.

b. Prepare the journal entry required in this situation.

c. Indicate all the accounting records to which your journal entry in part b should be posted.

Step-by-step solution:

Step 1 of 5

A. Over time normal inventory shrinkage may cause some discrepancies between the quantities of merchandise shown in the inventory records and the quantities actually on hand. The difference between the inventory account and the physical count could be cause by theft, breakage, spoilage, or shoplifting