Inventory discrepancies in the purchase/sale of goods

Inventory discrepancies are differences between the stock counted in the warehouse (known as inventory) and the stock recorded in the accounts. This article discusses the causes and handling of inventory discrepancies.

Inventory differences can have the following causes:

• Incorrect entries
• Theft
• Shrinkage, i.e., the natural decrease in weight or volume of certain products during long-term storage (e.g., liquids)

Inventory differences are often negative, i.e., the inventory shows a smaller quantity than is reported in the accounts but is not actually present in the warehouse (known as inventory shortages). Accordingly, they must be deducted from the warehouse stock.

Accounting entry: Cost of goods/inventory