Periodic Inventory System

1. Determine your total amount of purchases for the accounting period. This is the cost of your new inventory
goods.

2. Count your inventory at the end of the accounting period. Determine its value based on your inventory
valuation method.

3. Add your purchases total to your beginning inventory amount and deduct your ending inventory amount.
This is your total cost of goods sold for the period. Any losses are accounted for in your ending inventory total,
which is reported on your balance sheet. The losses are also accounted for in your total cost of goods sold,
which is reported on your income statement.

Perpetual Inventory System

1. Count your remaining inventory at the end of your fiscal year, and determine its value based on your
inventory valuation method.

2. Deduct the value of your ending inventory from the value of your perpetual inventory as reflected in your
accounting records. This is your loss amount.

3. Debit the total loss amount to "Inventory Shrinkage Expense," "Inventory Loss Expense" or directly to
"Cost of Goods Sold." This reflects the cost of your inventory loss and is reported on your income statement.

4. Credit the total loss amount to "Inventory." This reduces your inventory total based on your loss amount,
and the new inventory total is reported on your balance sheet.