York Merchandising Company uses a perpetual inventory system. At the end of the accounting period, a physical count of merchandise inventory reveals a balance of $76,500. The books show a balance of $78,200.
(a) Prepare the adjusting entry. Omit explanation.
(b) Discuss the possible causes for the difference between the physical count and the balance in the books.
(c) How does this affect net income?
(a) 
(b) The difference can be a result of theft, damage, or errors.
(c) This decreases net income by $1,700, the amount of the inventory shrinkage.
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Fill in the blank(s) with the appropriate word(s).
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