 The adjusting entries for merchandisers are basically the same as those for service firms, with the exception of the possibility of adjusting the inventory account. Perpetual inventory trackers must take a physical count of inventory at least once a year to make sure the inventory account balance is correct. If it is different, then an adjusting entry is required to correct it. The adjusting entry for inventory is a debit to costs of goods sold and a credit to inventory. Sometimes those are reversed, but it's usually correcting an error rather than a true adjusting entry. So let's look at an example. Assume that championship vinyl has an unadjusted balance of $20,500 in the inventory account. That balance comes from the accounting cycle step four, the unadjusted trial balance. After a physical count, championship vinyl determines that its actual merchandise inventory at the end of the year is $19,000. So it has to make a $1,500 adjusting entry so that the physical inventory amount equals the ledger balance for inventory. The closing entries for merchandisers are the same as those for service firms, except that we have some new temporary accounts that must be included in the closing process. Since sales returns and allowances, sales discounts, and costs of goods sold all have normal debit balances, they get closed with credits and are included in the expenses closing entry. Revenues get closed with debits to the revenue accounts and a credit to retained earnings. Expenses and contra revenue accounts get closed with credits and retained earnings is debited. Finally, dividends is closed with a credit and a debit to retained earnings.