Measuring stock shrinkage between counts

How a shop works out shrinkage between book stock and counted stock, what the figure says about its causes, and how the loss reaches the books.

By Achekam · 11 October 2026 · 5 min read · For Retail businesses in South Africa, Nigeria, Kenya

After the stock count, the owner of a small supermarket has two numbers in front of her: what the system says should be on the shelves, and what the staff actually counted. The second is lower. It always is. The question is whether the gap is normal wear and tear on a busy shop, or a sign that something is going badly wrong.

That gap has a name, shrinkage, and measuring it properly is the first step to controlling it. This article explains how to calculate it, what tends to cause it, why it hurts more than its size suggests, and how to make sure the loss appears in the books as well as in the stock records.

Book stock less counted stock

Investopedia defines inventory shrinkage as the difference between recorded, or book, inventory and actual, physical inventory. Its example: if book inventory is $1 million but a physical count finds $900,000 of stock, shrinkage is $100,000.

For a shop, the calculation runs like this, in words:

1. Take the book stock at the count date, at cost: what the system says you hold.
2. Take the counted stock at the same date, at the same cost prices.
3. Subtract the counted figure from the book figure. The result is the shrinkage for the period since the last count.

Two things make the figure meaningful. First, value both sides at cost, so the comparison is like with like. Second, compare one period with the next, using the same method each time. A single shrinkage number tells you little; a rising trend tells you a lot.

Is our figure high?

The National Retail Federation's National Retail Security Survey 2023 found that the average retail shrink rate in its financial year 2022 rose to 1.6%, up from 1.4% the year before. That is US retail data, so it is not a benchmark for a South African, Nigerian or Kenyan shop. Your own trend, line by line and period by period, is the better guide.

Where the stock goes

Investopedia lists the causes of shrinkage as shoplifting, administrative error, employee theft, vendor fraud and broken items, among other reasons. In practice, each cause leaves a different fingerprint:

Breaking shrinkage down by product category, location and period is what turns one number into a list of suspects. If one category accounts for most of the loss, start there. The warning signs that point to staff in particular are covered in staff theft warning signs.

Why a small loss hurts a lot

Investopedia explains that a retailer cannot recoup the cost of stock lost to shrinkage, because there is nothing left to sell or return, so the loss comes straight off the bottom line. That is especially painful in low-margin, high-volume retail.

A worked example in words: a grocer earns a thin margin on each tin of fish. When one tin is stolen, the grocer has lost its full cost, and has to sell many more tins at that thin margin just to earn back what the stolen one cost. The thinner the margin, the more sales it takes to cover each lost item. That is why a figure that looks modest as a share of stock can wipe out a large part of a month's profit.

Counts change quantities; the books need a journal

The shrinkage figure depends on accurate book stock, and that depends on how sales and counts are recorded.

In Achekam, a till sale takes the sold quantity off stock in the same step, at the till's location, and refuses to let stock go negative unless the business allows negative stock. With the Warehousing add-on, a stock count sets a location's quantity to what was counted and records the difference as an adjustment. So the stock records show both the book quantity before the count and the adjustment the count made, which is the raw material for the shrinkage calculation.

There is a limitation to be clear about. Stock counts, wastage, transfers and opening quantities do not post to the general ledger; only till sales and till returns move the inventory account. After a count, the quantities are right but the inventory value in the books still includes the missing stock.

So the shrinkage value needs its own entry. Once the count is finished and investigated, post a manual journal debiting a stock losses or shrinkage account and crediting inventory with the value of the net shortage. A business can post manual journals; an unbalanced journal or one dated in a closed month is refused, and a posted journal is corrected only by a reversal. Attach the count summary as support. Without that journal, the balance sheet overstates stock and the income statement understates the loss.

For running the count itself, see counting stock at a stock take.

Bringing the figure down

Investopedia recommends controlling shrinkage through inventory audits, surveillance cameras, thorough vendor reviews and theft-prevention training for employees. Its guide to shrinkage explains the causes, how shrinkage shows up as the gap between book and physical stock, and how regular audits help reduce it.

Matched to the causes above:

• More frequent counts of the categories where losses concentrate, so problems surface within weeks rather than at year end.
• Cameras covering exits, high-value displays and the tills.
• Vendor reviews: count deliveries against the delivery note before signing, and compare invoiced quantities with what was received.
• Staff training on spotting shoplifting, handling damaged goods and recording breakages as they happen.

After your next count, calculate shrinkage for each product category rather than the shop as a whole, post the journal, and pick the worst category as the focus for the next month.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.