determining the quantity of inventory on hand through an inventory count (i.e., quantity, weight). By multiplying the quantity times the unit cost, the total inventory cost is derived. There are three types of physical inventories. One is a continuous inventory to supplement the perpetual inventory records. Another is an inventory count of only specific merchandise on a periodic basis. The third is an annual year-end count. The physical inventory is compared to the book inventory. Discrepancies are noted and investigated. The financial statements must show inventory at the perpetual amount. Assume book inventory is $10,000 and physical inventory is $9900. The entry for the inventory difference is to debit inventory shortage and credit inventory for $100.
actual count of items in inventory, as contrasted with accepting the values shown on accounting records.