Jones Company began the current month with inventory costing $12,000, then purchased inventory at a cost of $38,000. The perpetual inventory system indicates that inventory costing $35,210 was sold during the month for $44,000. If an inventory count shows that inventory costing $14,300 is actually on hand at month-end, what amount of shrinkage occurred during the month?

$490

Explanation:

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

The perpetual inventory system is one in which the inventory balance is adjusted for every purchase and sale. Every shrinkage is adjusted in the cost of goods sold.

As such

$12,000 + $38,000 - cost of goods sold = $14,300

cost of goods sold = $12,000 + $38,000 - $14,300

= $35,700

Shrinkage = $35,700 - $35,210

= $490

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