Question

Which of the following methods can be used to conceal inventory shrinkage on a company's books?

a. Creating fictitious sales and receivables
b. Writing off inventory as obsolete
c. Physical padding
d. All of the above

Answer 1

Concealing inventory shrinkage on a company's books can be done through creating fictitious sales and receivables, writing off inventory as obsolete, and physical padding. All mentioned methods are ways to align book records with actual inventory, despite losses, and are considered unethical and often illegal practices.

Step-by-step explanation:

The methods that can be used to conceal inventory shrinkage on a company's books include:

• Creating fictitious sales and receivables: This involves recording fake sales and the corresponding receivables to make the inventory level appear consistent with the books, even though some inventory may have been lost, stolen, or wasted.
• Writing off inventory as obsolete: This method includes improperly writing off good inventory as obsolete, damaged, or unsellable, thereby reducing the inventory count on the books to match the actual inventory on hand.
• Physical padding: This is a technique where the actual physical count of inventory is inflated to match the book inventory figures, hiding any discrepancies from inventory loss.

Concealing inventory shrinkage is unethical and often illegal, as it misrepresents the financial health of a company. All of the options provided (creating fictitious sales and receivables, writing off inventory as obsolete, and physical padding) can be employed to hide inventory shrinkage.