How to account for Inventories in an year end adjustment

If you're doing perpetual method, you will either debit or credit the inventory account, whatever works to get it to the balance that matches your physical count. That is, if the physical count is lower than the balance in your inventory account, you have to credit it to reduce that balance down. Whether that is debit or credit, the other side of that entry is always cost of goods sold.

Caveat: this is based on the assumptions that a) you're talking about the adjustment for perpetual method, and b) that you aren't referring to manufacturing inventory accounts which can also be pro-rated to different places.