Question

1. The two types of adjusting entries for merchandising companies include

a.Inventory and Customer Replacements.

b.Inventory Shrinkage and Customer Returns and Allowances.

c.Inventory Shrinkage and Customer Payables.

d.None of these choices, since no journal entry is needed.

2. Estimated Returns Inventory is

a. an owner's equity account increasing equity.

b. an asset account reported with Inventory on the balance sheet.

c. a liability account with a normal credit balance.

d. None of these choices, since this account does not exist

Answer 1

1. The two types of adjusting entries for merchandising companies include:

b) Inventory Shrinkage and Customer Returns and Allowances

Reason - At the end of the accounting periods inventory may be decrease or increase or found damage at the time of physical count. Then the adjusting entries are required for the goods & goods return by the customer.

2. Estimated Returns Inventory is

b) an asset account reported with Inventory on the balance sheet.

Reason - Estimated Returns Inventory are the inventory which is deducted from the sales and added to the inventory back. Hence these will increase our inventory again & need to report as current asset under inventory