How to Account for Inventory Waste and Shrinkage

Managing inventory waste and shrinkage starts with comparing physical stock counts against recorded balances and identifying the cause, such as damage, normal production loss, recording errors, or unexplained shortages. Document affected items, quantities, values, and findings before approving inventory adjustments.

Accounting treatment depends on the nature of the loss. Normal production waste may form part of production costs, while abnormal waste is generally recognized as an expense under applicable accounting standards. Try Cash Cloud for free to explore stocktaking and inventory adjustment tools.