What is inventory shrinkage? How do managers account for shrinkage?

Inventory shrinkage is the loss of merchandise inventory due to theft or deterioration or similar occurrences.It is computed by comparing a physical count of the inventory with recorded amounts.A physical count is usually performed at least once annually and an adjusting entry is prepared to account for any differences.Inventory shrinkage is typically added (debited)to the cost of goods sold and deducted (credited)from Merchandise Inventory.