What does the term "inventory shrinkage" refer to?

Inventory shrinkage refers specifically to the loss of inventory that can occur due to various reasons such as theft, damage, expiration, or errors in recording. This term is commonly used in retail and other inventory-based businesses to quantify the discrepancy between the recorded inventory and the actual inventory available. Recognizing inventory shrinkage is crucial for businesses as it can significantly impact financial statements and resource management.

Understanding this concept helps companies take measures to minimize these losses, such as improving security, better inventory management practices, and staff training. By addressing the causes of shrinkage, organizations can improve their overall efficiency and profitability.