1. What is Inventory Shrinkage?

Inventory shrinkage refers to the loss of products between the point of manufacture or purchase from supplier and the point of sale. It represents the difference between recorded inventory and actual inventory.

2. How Does the Calculator Work?

The calculator uses the shrinkage percentage formula:

Where:

• \( \text{Beginning Inventory} \) — Starting inventory count in units
• \( \text{Ending Inventory} \) — Final inventory count in units
• \( \text{Shrinkage %} \) — Percentage of inventory lost

Explanation: This formula calculates what percentage of your beginning inventory was lost due to shrinkage during the measurement period.

3. Importance of Shrinkage Calculation

Details: Calculating shrinkage percentage helps businesses identify inventory losses, improve inventory management, reduce theft and waste, and maintain accurate financial records.

4. Using the Calculator

Tips: Enter beginning inventory and ending inventory in units. Both values must be positive numbers, with beginning inventory greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What causes inventory shrinkage?
A: Common causes include theft (employee or customer), administrative errors, supplier fraud, damage, and obsolescence.

Q2: What is an acceptable shrinkage percentage?
A: Industry standards vary, but generally 1-2% is considered acceptable for retail, while lower percentages are expected in other industries.

Q3: How often should shrinkage be calculated?
A: Most businesses calculate shrinkage monthly or quarterly, with comprehensive physical inventory counts at least annually.

Q4: Can shrinkage be negative?
A: Yes, negative shrinkage indicates inventory gain, which may result from recording errors, unrecorded purchases, or other discrepancies.

Q5: How can businesses reduce shrinkage?
A: Strategies include improved security systems, employee training, regular audits, better inventory tracking systems, and clear procedures.