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What is the adjusting journal entry

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Question - The owner of this trading company engaged your services as auditor. There is a discrepancy between the company's income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigations revealed the following:

1. Physical inventory (ending) taken December 31 under your observation showed that cost was P26,500 and market value, P25,000. The inventory of January 1 (beginning) showed cost of P39,000 and market value of P36,000. It is the firm's practice to value inventory at " lower of cost or market". Any loss between cost and market value is included in " Other Expense".

2. The average gross profit rate was 40% of net sales.

3. The accounts receivable as of January 1 were P13,500. During the year, Accounts receivable written off amounted to P1,000. Accounts receivable as of December 31 were P37,500.

4. Outstanding purchase invoices amounted to P50,000 at the end of the year.

Required - What is the adjusting journal entry?

Reference no: EM132876564

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