Shrinkage is the unaccounted for reduction in a company's inventory that results from error or theft.
Inventory shrinkage occurs when an actual inventory levels are shown less than accounting has them recorded as. Usually this means that something has gone wrong, either from an accounting error or theft.
When the number of products in stock are fewer than those recorded on the inventory list, then the inventory shrinkage occurs. This discrepancy may occur due to goods being damaged or lost, clerical errors or theft from the point of purchase to sale.
Hence, the shrinkage could be the result of breakage, theft, poor recordkeeping, etc.
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