Adjustments for Merchandise Inventory

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The merchandise inventory account only shows the beginning balance of inventory, not any purchases made during the period. It is therefore necessary to remove the beginning inventory balance and replace it with the ending inventory balance. This is performed by the following two adjusting entries:

1. Debit the beginning inventory balance to Income Summary, and credit the Merchandise Inventory account.
2. Debit the ending inventory balance to Merchandise Inventory, and credit the Income Summary account.