Draft the relevant journal entry to adjust the Trading stock account. Post to the following accounts in the General Ledger: (a) Trading stock (b) Trading stock deficit Show the effect of the adjustment entry on the Accounting equation.

Here's the solution for Task 10.18:

TASK 10.18 Eppy Stores: Trading stock deficit

First, calculate the trading stock deficit:

$$\text{Book Balance} = R35\,120$$ $$\text{Physical Count} = R34\,540$$ $$\text{Trading Stock Deficit} = R35\,120 - R34\,540 = R580$$

10.18.1 Draft the relevant journal entry to adjust the Trading stock account.

GENERAL JOURNAL - FEBRUARY 20.1

J/V	D	Details	Fol	Debit	Credit
1	28	Trading Stock Deficit	N16	580
		Trading Stock	B7		580
		Trading stock deficit as identified by physical count

10.18.2 Post to the following accounts in the General Ledger:

(a) Trading Stock Account

Dr	20.1		B7	Cr
Feb 28	Balance	b/d	35 120	Feb 28	Trading Stock Deficit	GJ1	580
				Feb 28	Balance	c/d	34 540
			35 120				35 120
Mar 1	Balance	b/d	34 540

(b) Trading Stock Deficit Account

Dr	20.1		N16	Cr
Feb 28	Trading Stock	GJ1	580
				Feb 28	Balance	c/d	580
			580				580
Mar 1	Balance	b/d	580

10.18.3 Show the effect of the adjustment entry on the Accounting equation.

	ASSETS	=	OWNER'S EQUITY	+	LIABILITIES
Adjustment	- R580	=	- R580	+	R0

• Assets: Trading Stock (an asset) decreases by R580.
• Owner's Equity: Trading Stock Deficit is an expense, which reduces profit and therefore decreases Owner's Equity by R580.
• Liabilities: There is no effect on liabilities.