MANAGEMENT

Detailed explanation-1: -When your business experiences shrinkage, you must adjust your accounting books. Record inventory losses by increasing your Shrinkage Expense account and decreasing your Inventory account. Debit your Shrinkage Expense account and credit your Inventory account.

Detailed explanation-2: -Shrinkage is the difference between recorded inventory on a company’s balance sheet and its actual inventory. This concept is a key problem for retailers, as it results in the loss of inventory, which ultimately means loss of profits.

Detailed explanation-3: -Inventory shrinkage occurs when the number of products in stock are fewer than those recorded on the inventory list. The discrepancy may occur due to clerical errors, goods being damaged or lost, or theft from the point of purchase from a supplier to the point of sale.