QS 5-6 Accounting for shrinkage - perpetual system Nix'It Company's ledger on July 31, its financial year-end, includes the following selected accounts that have normal balances (Nix'It uses the perpetual inventory system). Merchandise inventory T. Nix, Capital. T. Nix, Withdrawals Sales. Sales discounts $ 34,800 115,300 7,000 157,200 1,700 QS 5-7 Closing entries Sales returns and allowances Cost of goods sold Depreciation expense Salaries expense Miscellaneous expenses $ 3,500 102,000 7,300 29,500 2,000 A physical count of its July 31 year-end inventory discloses that the cost of the merchandise inventory still available is $32,900. Prepare the entry to record any inventory shrinkage. Refer to QS 5-6 and prepare journal entries to close the balances in temporary revenue and expense accounts. Remember to consider the entry for shrinkage that is made to solve QS 5-6.

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…