Mr. Madsen; In order to have an accurate net income we need to count all our inventory to find out exactly how much we have lost from shoplifting and inventory shrinkage. Since we use the perpetual inventory system we should be doing an inventory count often, especially if you believe we have a shoplifting issue going on. I used my records to give you my best count of the company’s net income. Bragg (2015) tells us, “A perpetual inventory system has the advantages of both providing up-to-date inventory balance information and requiring a reduced level of physical inventory counts. However, the calculated inventory levels derived by a perpetual inventory system may gradually diverge from actual inventory levels, due to unrecorded transactions or theft, so you should periodically compare book balances to actual on-hand quantities, and adjust the book balances as necessary.” To measure the amount of inventory shrinkage, conduct a physical count of the inventory and calculate its cost, and then subtract this cost from the cost listed in the accounting records. Divide the difference by the amount in the accounting records to arrive at the inventory shrinkage percentage. Since we use this method we should have a semi accurate count. If you truly feel I have miscalculated the net income than I recommend a store wide inventory at the end of each month or each year in order to adjust the book balance. Let me know if there is anything I can do to help.

Ashley Learn Financial Officer

Reference

Bregg, S. (2015). The Perpetual Inventory System. Accounting Tools. Retrieved October 12, 2015, from