Practice prompt · Q:inventory-ownership-cost-flow-and-measurement/shrinkage-measurement-001

Investigate the difference a count reveals

Tests whether the learner separates a measurable book to count difference from its cause and compares periodic and perpetual visibility.

Updated Sep 10, 2026 Review due Nov 18, 2026

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A retailer's perpetual records show inventory of 214,000 at December 31. The physical count values the goods on hand at 208,500.

The perpetual balance makes the $5,500 difference visible. It does not prove that goods left without a sale. Investigate count errors, rights and cutoff, consignment, returns, transfers, units of measure, duplicate records, damage, and loss before posting. ASC 330-10-30-8 connects inventory costing with an adequate, consistently applied cost system.

Choose the best answer. a A 5,500 book-to-count difference that must be investigated before its cause and correcting entry are selected. b No shrinkage can be computed, because the physical count is the only reliable figure. c An automatic 5,500 inventory increase, because the physical count is lower than the book record. d No difference, because periodic and perpetual systems always provide the same diagnostic evidence.

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Answer: a

Choice a. The measurable difference is $5,500. Investigate the count, rights, cutoff, units, and records before naming its cause or selecting the correcting accounts.