Which of the following common events could result in inventory shrinkage discovered during a physical inventory count?

• A. Recording a purchase of merchandise on account using a perpetual inventory system
• B. Recognizing revenue when goods are shipped FOB shipping point and title passes to the customer
• C. Employee theft or shoplifting of goods on hand
• D. Including goods held on consignment for another company in the consignor’s inventory

Answer: (C)

Verified step by step guidance

1. Understand that inventory shrinkage refers to the loss of inventory that is not accounted for through sales or recorded transactions, often discovered during a physical inventory count.
2. Review each event to determine if it could cause a discrepancy between recorded inventory and actual physical inventory:
3. 1. Recording a purchase of merchandise on account using a perpetual inventory system updates inventory records immediately, so it does not cause shrinkage by itself.
4. 2. Recognizing revenue when goods are shipped FOB shipping point transfers ownership and reduces inventory correctly, so it does not cause shrinkage.
5. 3. Employee theft or shoplifting physically removes goods without recording a sale or purchase, causing inventory shrinkage.
6. 4. Including goods held on consignment for another company in the consignor’s inventory is an error in inventory classification but does not cause shrinkage since the goods are still physically present.