Once you’ve adopted an effective inventory management system, these six tips and tricks can help lower your company’s risk of inventory shrinkage. There are definite chances that few items may go missing on account of damaged goods, but, losing inventory due to unethical reasons such as theft is a serious offense. It directly suggests that your workplace is lacking credibility, and you https://kelleysbookkeeping.com/ must take actions to encourage motivation and handle employee grievances. Your balance sheet would show a credit to the inventory line item for the value that was lost. Showing that you have incurred higher expenses and a lower gross profit will lower your taxable income. However, you might choose to record your shrinkage separately instead of including it into your costs of good sold.

And from a manufacturer or vendor perspective think loading the wrong cases onto the pallet or commingling different products in storage. Pouring 6 ounces of wine instead of the standard wine pour is a human error that can compound over time to increase shrinkage numbers. In the food and beverage industry, the same goes for any measuring and portioning done by people. Of note, what’s known as “POS exceptions” contribute to internal theft and are especially relevant to the hospitality industry. Because POS systems are so integrated into the sales of a bar or restaurant, employees have the ability to use them subtly and to their own benefit. That means ringing in obsolete prices, applying discounts, or otherwise being creative with how things are rung in.

Causes of Shrinkage

To find the inventory shrinkage rate, divide your inventory losses by the amount of inventory you should have. To find the inventory shrinkage rate, you need to know the cost of goods sold, how much inventory you have, and how much was lost to shrinkage. To help prevent shrinkage, businesses can conduct inventory audits, install surveillance cameras, thoroughly review vendors, and set up theft prevention training for employees.

A journal entry also needs to credit to the inventory account for $50,000. Inventory ListedInventories list is the systematic record of the raw material, work-in-progress and finished goods available with the company. However, you might choose to record your shrinkage separately instead of including it in your costs of goods sold. Whether you’re concerned about employee theft, shoplifting, or both, adding video surveillance could discourage inventory theft. You may want to consider hiring a security consultant to determine how to protect expensive inventory without sacrificing productivity or access at your place of business.

Take Inventory Often

To target shrinkage and employee theft specifically, assign cycle counts and data entry tasks at random. Besides helping to reduce favoritism and bias, double-blind counting can limit opportunities for gaming the system and exploiting the inventory count process to their advantage. To combat this tactic, you can require employees to scan their badges whenever they receive, move, or fulfill orders.

With proper inventory control and management, you can account for and prevent shrinkage, no matter the size of your business. Your inventory shrinkage rate is 10%, which means you lost 10% of your inventory value to shrinkage. What Is Inventory Shrinkage And How To Prevent It? Then, multiply your inventory shrinkage rate by 100 to convert it into a percentage. In addition to loss prevention training, employee incentives. Create a strong company culture that fosters honesty and integrity.