Adjustments for Lost or Stolen Inventory (Accounting) - Explained
How to make Accounting Adjustments for Lost or Stolen Inventory
Written by Jason Gordon
Updated at April 7th, 2022
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How to Account for Lost or Stolen Inventory?
Inventory shrinkage is any loss of merchandise inventory from theft, damage, or deterioration. There is a specific adjustment to deal with inventory that was lost or stolen.
When reporting our balance of inventory, we want it to be as accurate as possible. So, we have to make sure what we have on our shelves is the same as what we have in our books.
The only way to do that is to be able to take a physical account and make sure that our T table is correct. So this is determined by comparing a physical count of inventory with the amount recorded on the records, (i.e., to what it says in my T tables).
If they're the same, I do nothing. If there is a shortage,I'm going to debit the expense as a Cost of Goods Sold. Note: I'm going to put a little parentheses that show this is not something that I sold. Then, I'm going to credit inventory for much there is a shortage.
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- Accounting Cycle for Merchandising Business Example Part 1
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