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LESSON 14-3

Learn how to analyze and record merchandise inventory adjustments, understand normal balances, and use Income Summary for adjustments. Practice adjusting inventory balances for fiscal period closings.

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LESSON 14-3

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  1. LESSON 14-3 Planning and Recording a Merchandise Inventory Adjustment

  2. MERCHANDISE INVENTORY page 415 • The amount of goods on hand for sale to customers is called merchandise inventory • Merchandise Inventory is an asset account with a normal debit balance • The inventory account is not used to record changes to inventory during the fiscal period. • Increases in inventory are recorded as purchases during the period. • Decreases in inventory are recorded as sales during the period. • The account is adjusted once at the end of the fiscal period when the worksheet is prepared. LESSON 14-3

  3. MERCHANDISE INVENTORY page 415 • The adjustment to merchandise inventory does not have a related expense account. • Adjustments to merchandise inventory are adjusted using the Income Summary account Income Summary LESSON 14-3

  4. 3 3 ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENT page 416 Hobby Shack’s merchandise inventory account on January 1, the beginning of the fiscal year, has a debit balance of $140,480.00. The actual count of merchandise on December 31 shows that the inventory is valued at $124,640.00. 2 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment with a small letter d in parentheses. LESSON 14-3

  5. Merchandise Inventory Jan. 1 Bal. 294,700.00 Adj. (d) 4,200.00 (New Bal. 298,900.00) Income Summary Adj. (d) 4,200.00 ANALYZING AN ADJUSTMENT WHEN ENDING MERCHANDISE INVENTORY IS GREATER THAN BEGINNING MERCHANDISE INVENTORY page 417 Hobby Shack’s merchandise inventory account on January 1, the beginning of the fiscal year, has a debit balance of $294,700.00. The actual count of merchandise on December 31 shows that the inventory is valued at $298,900.00. LESSON 14-3

  6. TERM REVIEW page 418 • merchandise inventory LESSON 14-3

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