Retail Accounting

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Retail accounting 101: Shrinkage

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The accounting term ‘shrinkage’ is defined as the loss of products between point of manufacture or purchase from supplier and point of sale with the customer.

The average shrinkage as a percentage of sales varies 1% to 1.5% of sales.

Shrinkage and fraud remain key stock control issue for retailers. Improving end-to-end tracking of ingredients and chain of custody through new technologies such as RFID (Radio Frequency Identification Device) is a challenge for the industry.

To calculate the shrinkage for a retail outlet, use the calculation below:

Opening Stock + Purchases – (Sales * (100 – Budgeted GP %)) = Calculated Closing Stock
Calculated Closing  Stock – Physical Counted Stock = Shrinkage
Shrinkage/Total Sales x 100 = Shrinkage Percent

The Centre for Retail Research has recently published The First Worldwide Shrinkage Survey from which the following tables have been extracted:

Some of the reasons for shrinkage are:-

  • Damage in transit, storage or the store.
  • Administrative errors such as shipping errors, warehouse discrepancies, and misplaced goods.
  • Cashier or price-check errors in the customer’s favour.
  • Supplier fraud.
  • Shoplifting
  • Employee theft
  • Perishable goods not sold within their shelf life.
  • Paperwork errors and EPOS glitches

Retail accounting 101: Shrinkage

Many retailers are improving end-to-end tracking through the introduction of new technologies such as RFID (Radio Frequency Identification Device).

Retail accounting 101: Shrinkage

Retail accounting 101: Shrinkage


Author: retailaccounting

CounterBooks is an online retail accounting management suite which is used by retailers across the world.

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