Juan Morales Company had the following account balances at year-end: Cost of Goods Sold $60,430; Inventory $14,340; Operating Expenses $29,560; Sales Revenue $124,430; Sales Discounts $1,120; and Sales Returns and Allowances $1,830. A physical count of inventory determines that merchandise inventory on hand is $13,050.

Prepare the adjusting entry necessary as a result of the physical count.

1. Account Titles and Explanation

Debit Credit

2. Account Tiles and Explanation

Debit Credit

Explanation:

The adjusting entry for physical count is shown below:

Cost of goods sold A/c Dr $1,290

           To Inventory A/c $1,290

(Being the adjusting entry for physical count is recorded)

The computation is given below:

= Year end balance of inventory account - physical inventory on hand

= $14,340 - $13,050

= $1,290

The closing entries for the following accounts are shown below:

1. Sales Revenue A/c Dr $124,430

            To Income Summary $124,430

(Being revenue account closed)

2. Income summary A/c Dr $94,230

           To Cost of goods sold $61,720   ($60,430 + $1,290)

           To Sales Discounts $1,120

           To Operating Expenses $29,560

           To Sales Returns and Allowances $1,830

(Being expenses accounts are closed)

3. Income summary A/c Dr $30,200    ($124,430 - $94,230)

                To Retained earning $30,200

(Being the difference is credited to retained earning)

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