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Financial & Managerial Accounting
Found in: Page 259

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Short Answer

What factors contribute to (or cause) inventory shrinkage?

Theft, damagers, and inaccurate physical count lead to shrinkage of inventory.

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Step by Step Solution

Definition of Inventory Loss

The measure used to determine the amount of inventory that a business entity cannot deliver into the hands of the customer is known as inventory loss.

Factors contributing to the inventory shrinkage

  1. Theft of inventory by an employee or anyone else will shrink the business’s inventory.
  2. Any damages due to natural disasters or any other action will also shrink the business’s inventory.
  3. Inventory also gets shrinks due to inefficient or inaccurate physical count.

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