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Shrinkage and overage (hereafter, generally, shrinkage) are
attributable to a variety of factors, the total number of which
cannot be quantified, including the following:
1. theft of merchandise (by employees, customers, and
vendors);
2. unrecorded or improperly recorded losses of merchandise
due to spoilage, breakage, and other damage;
3. unit discrepancies in goods received from and/or
returned to vendors;
4. failure to ring or record the proper price upon sale of
merchandise;
5. errors in recording retail prices (including price
changes) on a taxpayer’s perpetual record;
6. errors in marking and changing prices on merchandise;
7. failure to properly record returns by customers;
8. errors in conducting the physical inventory (including
both unit errors and pricing errors);
9. errors in processing paper (including price-change
documents, invoices, and merchandise transfers); and
10. errors in billing and other computer systems.
The retailers experienced some or all of the factors listed
(shrinkage factors) during the years in issue. The occurrence of
shrinkage factors is not limited to particular times during the
year, but, generally, each of the factors occurs throughout the
year.
C. Accounting for Shrinkage
If inventory is not physically counted at the end of the
annual accounting period (year), shrinkage (as defined above)
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Last modified: May 25, 2011