INVENTORY AND PRODUCTION MANAGEMENT
Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Detailed explanation-1: -Shrinkage is the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative error, vendor fraud, damage, and cashier error. Shrinkage is the difference between recorded inventory on a company’s balance sheet and its actual inventory.
Detailed explanation-2: -Answer and Explanation: It is not true that b) inventory shrinkage is recognized by debiting an operating expense. The shrinkage, which is loss caused by things like theft or deterioration, is recognized by debiting the cost of goods sold and crediting the inventory account.
Detailed explanation-3: -Shrinkage can be caused by theft or deterioration. Shrinkage is computed by comparing a physical count of inventory with the recorded amount. Shrinkage is recorded by debiting Cost of Goods Sold. All of the statements are correct.
Detailed explanation-4: -The shrinkage could be the result of theft, breakage, poor recordkeeping, etc. The term shrinkage may also be used by manufacturers to describe the loss of raw materials during their production processes. This shrinkage is also known as spoilage or waste and it can be either normal or abnormal.
Detailed explanation-5: -Inventory shrinkage is when actual inventory levels are less than accounting has them recorded as. Usually this means something has gone wrong, either from an accounting error or theft.