Returns and shrinkage
Objective: Record inventory returns and count adjustments.
Recommended first: Perpetual inventory basics
A customer return reverses both parts of the sale if the goods return to stock. Shrinkage — inventory lost, stolen, or damaged — is found by comparing records with a physical count and is expensed as the exercise states.
Customer returns reverse both parts of a sale only if the goods go back into saleable stock; damaged returns may be written off instead, as the exercise states. Shrinkage is found by counting: the difference between the records and the count is removed from inventory, usually through cost of goods sold.
Check your work
- Was the return recorded at selling price and at cost?
- Is the shrinkage amount the record minus the count?
- Was the stated expense account used?
Regular cycle counts — counting a few items each week instead of everything at once — help spot shrinkage early and identify which products are most affected.
Records $8,000, count $7,850.
| Account | Debit | Credit |
|---|---|---|
| Cost of Goods Sold | $150.00 | |
| Inventory | $150.00 |
Common mistakes
✗ Ignoring the cost side of a return.
✓ Restore inventory at cost.
Guided practice
Use hints freely here.
Item 1 of 1
Customer returns goods (perpetual)
On Mar 13, 2026, a customer returns goods sold on account for $170.00; the goods cost $102.00 and go back into stock in perfect condition. Record both effects.
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Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 4
Inventory shrinkage
At Mar 31, 2026, Little Fern Online Shop's perpetual records show inventory of $7,400.00, but a physical count shows $7,095.00. Record the shrinkage as Cost of Goods Sold.
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References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.