Compare the stock your system expects with what you counted. See the loss in rupees, as a share of sales, over a year, and the extra sales it takes to earn it back.
If the count is higher than the system figure, the result shows a gain. That usually points to stock received without being entered, or sales billed under the wrong item, rather than good news.
A grocery store's system shows ₹25 lakh of stock at cost, and the physical count finds ₹24.4 lakh. Shrinkage is ₹60,000 over 3 months of ₹45 lakh sales: 1.33% of sales, or about ₹2.4 lakh a year. At a 5% net margin, the store needs ₹12 lakh of extra sales just to make up that quarter's loss.
To find which one it is, count a small set of high-value or fast-moving items often (cycle counting) instead of waiting for the annual count, and compare shrinkage by store. Read more on preventing staff theft and shrinkage and catching transfer shortages at the loading bay.
Shrinkage is stock your records say you have but that is not on the shelf or in the stockroom when you count it. It comes from theft by customers or staff, damage and expiry that was not recorded, billing and receiving mistakes, and supplier short deliveries that were accepted without a check.
Shrinkage percentage = (system stock value minus counted stock value) / sales for the same period x 100. Use cost price for both stock figures and sales excluding GST, and measure between two full stock counts so the period is clear.
Use cost price for the loss you record in your books, because that is what the missing stock cost you. Some retailers also look at it at selling price to see the sales they lost. Be consistent, especially when comparing stores.
Every rupee of shrinkage comes straight out of profit. To earn it back you need extra sales of shrinkage divided by your net profit margin. At a 5% net margin, a ₹50,000 loss needs ₹10 lakh of extra sales to recover.
Section 17(5)(h) of the CGST Act blocks input tax credit on goods that are lost, stolen, destroyed or written off, so credit already taken on such stock generally has to be reversed. How you record the loss and the reversal depends on your case, so confirm the treatment with your CA.
Commmerce gives you one inventory view across every branch and warehouse, with stock transfers between them and a full movement history, so a gap in the count can be traced.
See inventory
