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basis within the Dayton's division. Physical inventories were
not taken in Target stores commencing operations during 1984.
The results of a physical inventory often would indicate that
inventory shrinkage had occurred. Inventory shrinkage is the
difference between the amount of inventory the stock account
shows as being on hand and the amount of inventory that is
actually on hand. When inventory is determined from book
inventory records (computed without any accrual for estimated
shrinkage), and the inventory so determined exceeds inventory
determined by physical count, the difference is termed
“shrinkage”. When book inventory so determined is exceeded by
inventory determined by physical count, the difference is termed
“overage”. Factors that contribute to shrinkage and overage
(hereafter, generally, shrinkage) include theft by employees,
customers, and vendors, and paperwork, billing, and other systems
errors. Both Target and Dayton's experienced some or all of the
listed shrinkage factors during the year 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)
cannot be determined for the period from the last physical count
to the end of the year (the physical-to-yearend period). If
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Last modified: May 25, 2011