An entry to record the amount of inventory shrinkage decreases both assets and equity.

Question

Quizplus · Accepted Answer

Inventory shrinkage is the loss of inventory due to theft, damage, or other issues. When the inventory shrinkage is recorded, the inventory asset account is decreased to reflect the loss of inventory. This decrease in assets will also lead to a decrease in equity, as equity is calculated as assets minus liabilities. Therefore, both assets and equity are decreased when the amount of inventory shrinkage is recorded.

An Entry to Record the Amount of Inventory Shrinkage Decreases