Question

Wolfpack Corp. uses the perpetual inventory system. Shown below are its “Inventory” and “Cost of Goods Sold” account balances at the end of 2018 just before its year-end physical inventory count:

Inventory			Cost of Goods Sold
12/31/18   77,000			12/31/18        800,000

Wolfpack’s physical inventory count at the end of 2018 shows the cost of inventory still on hand to be $85,000.

On 12/31/18, what will be the year-end entry Wolfpack makes to adjust its ending inventory balance to agree to the physical count?

Answer 1

• Inventory balance on 12/31/2018 as appearing is $ 77,000
• The physical count shows that balance is $ 85,000
• This means that Inventory value has to be increased by $ 8,000 [to make it $ 85,000]

--Inventory account is an Asset account and it is increased when DEBITED.

--Hence, in the year end adjusting entry, Inventory account has to be debited.

--The respective amount will be credited to Cost of Goods Sold account, thereby decreasing the Cost of Goods balance.

	Inventory	Cost of Goods Sold
Before Adjustments	$            77,000.00	$        800,000.00
Adjustments	$              8,000.00	$           (8,000.00)
Adjusted balance	$            85,000.00	$        792,000.00

• Adjusting Entry

Date	Accounts title	Debit	Credit
31-Dec-18	Inventory	$              8,000.00
	Cost of Goods Sold		$             8,000.00
	(Inventory value adjusted to agree to physical count)