Accounting help needed for retail inventory?

Question

A year end physical inventory at retail price yields a total inventory of 78,550.00. I need to prepare a calculation showing the company's loss from shrinkage at cost and at retail.
My text book shown nothing on how to do this and I am confused and lost on this question. Can some show me how to do this without giving me the answer. Thank you

Answer 1

A year end physical inventory will tell you the actual quantities on hand. You can value these quantities using the cost prices or the retail (selling) prices. You are told that the value using retail prices is $78,550. You should convert this to a value at cost price.

The co.'s own inventory system, computerised or otherwise, will give you the inventory details, like quantities, and values. Inventory programs give inventory values at cost. To calculate shrinkage, you need to compare this inventory listing with the actual count quantities valued at cost. Usually, actual counts give lower values, that's why it's called shrinkage.

Next, you need to adjust the shrinkage in the books so that you start the next financial year with the correct inventory figures. To do this, you pass the following entry:
Dr Cost of goods sold xxx
Cr Merchandise inventory xxx
(to recognise shrinkage at cost)

After passing this entry, your merchandise inventory per the accounting records should match with the inventory per the actual count.