This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin.
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Retailers often employ special accounting treatments that aren't seen in other industries. Because inventory controls are so important to these companies, they have developed several methods for tracking and accounting for the flow of inventory, from production to final sale. An important adjustment required from merchandising companies is accounting for inventory shrinkage, which is the difference between the physical inventory count and the amount of inventory recorded in the books. Inventory shrinkage can result from several factors, including theft by either customers or employees. Learning how to account for stolen inventory will allow you to balance your inventory account with the physical count.
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