E.Flynn Company uses a perpetual inventory system and reported $500,000 of inventory at the beginning of the month based on a physical count of inventory.During the month,the company bought $45,000 of inventory and sold inventory that had cost $30,000.At the end of the month,the physical count of inventory shows $510,000 on hand.How much shrinkage occurred during the month?

Question

Quizplus · Accepted Answer

Shrinkage refers to the loss of inventory due to factors such as theft, damage, or errors. To calculate shrinkage in this scenario, we need to compare the amount of inventory purchased and the cost of inventory sold to the ending inventory amount. 
Beginning inventory: $500,000 
Plus purchases: $45,000 
Minus cost of goods sold: $30,000 
Equals expected ending inventory: $515,000

However, the physical count of inventory at the end of the month only shows $510,000 on hand. This means that there was a shrinkage of $5,000 ($515,000 - $510,000) during the month. Therefore, the best choice is C.

EFlynn Company Uses a Perpetual Inventory System and Reported $500,000