[Mickey Swell]

Hey all! I was wondering if anyone can help me with this, I can’t seem to wrap my head around the solution.

Inventory stored at a distribution center on December 31, Year 2 was inadvertently omitted during the year 2 physical count, to which the general ledger was adjusted.

Answer: This decreases the inventory turnover ratio and increases the return on equity ratio.

The correcting entry is Dr. Inventory

Cr. Cost of good sold

I understand that you debit inventory obviously but I dont understand why they are crediting Cost of goods sold. Don’t you use the cost of goods sold account when items are sold? Am I totally missing something here?

The only thing I can think of is that when counting the inventory they EXPECTED those items in the count and when they didnt find them they wrote it off by Debiting Cost of Goods sold and Crediting Inventory. So they are reversing that entry? I don’t know…