Woods company uses the perpetual inventory system. At year end the general ledger indicated that this company had a balance of $ 46 comma 000 in the Inventory account. Actual inventory on hand per a physical count was $ 46500. What action does the company now need to take?

Question

Matilda Casey

Business

13 May, 15:15

Woods company uses the perpetual inventory system. At year end the general ledger indicated that this company had a balance of $ 46 comma 000 in the Inventory account. Actual inventory on hand per a physical count was $ 46500. What action does the company now need to take?

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Answers (1)

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Alexis Morgan · Answer 1

the company needs to debit inventory and credit of cost of goods sold for $500

Explanation:

The perpetual inventory management systems update the inventory level continuously. Every time a sale or purchase of inventory occurs, the system adjusts the cost of goods sold. From time to time, a physical count is conducted to compare the actual inventory level with the values reported in the system. In the event of differences, appropriate measures are taken.

In this case, the physical count was valued at $46,500, while the system reports $46,000. Since the physical count is the true reflection of the inventory level, the accountant has to adjust the system to match the physical account. The system needs to be increased by $500. Inventory is an asset and will require a debit entry of $500 to match the physical count. Movements in inventory affect the cost of goods sold account. A debit on inventory will correspond with a credit entry to the cost of goods sold account.