How to Prepare a Worksheet: Adjustments and Adjusted Trial Balance

What is the correct adjustment to the worksheet for the current year when an inventory audit shows an additional $210? Given the inventory audit results showing an additional $210 in inventory, the correct adjustment to the worksheet would be a) Debit Inventory $210, Credit Income Statement $210 which reflects the increase in inventory as a debit and the corresponding reduction in cost of goods sold as a credit on the Income Statement.

To prepare the worksheet with the given adjustments and adjusted trial balance for the current year, we will start by considering the unadjusted trial balance and including the additional fact provided. In this case, the adjustment is related to an inventory audit that revealed an additional $210 in inventory. The correct adjustment would be option a) Debit Inventory $210, Credit Income Statement $210.

Why? In accounting, the increase in assets (in this case, the inventory) is recorded as a debit. As such, the additional $210 in inventory is debited to the Inventory account. The corresponding credit entry should be in the income statement as it diminishes the cost of goods sold and thereby increases the gross profit. So the inventory audit has revealed that our cost of goods sold is actually $210 less, therefore increasing our overall profit. Hence, we credit the Income Statement by $210.

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