How to Record Inventory Shrinkage in a Kardex

How to Record Inventory Shrinkage in a Kardex

Any warehouse or small store that keeps physical inventory eventually ends up with damaged, expired or spoiled products. The problem is that those items keep appearing in the kardex — the inventory card — as if they were ready to be sold, when in reality they can no longer be commercialized. If that loss is never recorded, the balance shown by your system drifts further and further from what is actually sitting on the shelves. In this article you will learn what shrinkage is, why it must be recorded in the kardex, and how to register it step by step, including a complete numerical example.

What is inventory shrinkage?

Shrinkage (also called merma or spoilage) is a physical reduction of stock caused by something other than a sale. It includes products that were damaged, expired, broken, spilled or deteriorated by poor storage or careless handling. The goods still exist, but they can no longer be delivered to a customer in normal condition, so they stop being sellable assets and become a loss that the business must recognize.

In the kardex, shrinkage is treated as an output or outflow of inventory: the affected quantity is subtracted from the balance and its cost is removed as well, similar to what happens with a sale but for a different reason. That is why a good inventory program does not mix it with sales and classifies it as a separate decrease, so you can analyze it on its own later.

Normal shrinkage and abnormal shrinkage

Not all shrinkage is the same. To keep it under control, it helps to separate it into two groups:

• Normal or natural shrinkage: the loss you expect from everyday operations, such as liquid evaporation, dust left at the bottom of a container or the tiny fractions lost while handling bulk products. It is small, constant and nearly impossible to eliminate completely.
• Abnormal shrinkage: the loss that exceeds what is reasonable: whole batches that expire because of poor rotation, crushed boxes from bad stacking, goods damaged by moisture or pests, or losses caused by careless staff. This kind of shrinkage must be investigated, because it almost always points to a process problem that can be fixed.

Making this distinction helps you read the kardex correctly: normal shrinkage is accepted as a cost of doing business, while abnormal shrinkage should push you to review purchasing, storage and shipping practices.

Why shrinkage must be recorded in the kardex

The most important reason is simple: if shrinkage is not recorded, the kardex will report more stock than you actually have. Imagine your system says you have 100 units of a product but only 92 are on the shelf because 8 were damaged. If that outflow is never entered, every decision you make based on the system will be wrong: you will keep buying too much, you will not know which product is deteriorating, and at the physical count you will find a shortage you cannot explain.

Recording shrinkage the moment it is detected brings several benefits: the kardex balance stays up to date, you keep evidence of what happened, you can calculate the real cost of the loss, and the shortage will not be confused with theft or shipping errors. In Kardex Tauro, the negative differences found during physical counts are recorded as shrinkage, so the system deducts exactly what went missing and the balance goes back to matching the reality of the warehouse.

How to record shrinkage in Kardex Tauro

The program includes a window called Crear Merma (Create Shrinkage), designed to record the outflow of damaged, expired or spoiled products without having to invoice them. The general process is as follows:

1. Go to the Mermas y Disminuciones (Shrinkage and Decreases) section of the program and open the Crear Merma window to start the record.
2. Select the product that suffered the shrinkage. The system will use the current kardex balance and the current unit cost of that item as a reference, for example the average cost.
3. Enter the number of affected units and, when the record asks for it, the cause of the shrinkage, such as expiration, damage, spill or spoilage.
4. Save the record. The shrinkage outflow generates a movement in the kardex that subtracts the quantity from the stock balance and removes the cost from inventory.
5. Check the result: the new balance must match what is actually left in the warehouse, and the movement must appear listed in the Mermas y Disminuciones section.

Numerical example of a shrinkage record

Let us look at a concrete case. Imagine a small grocery store performs a physical count and finds three products with damaged or soon-to-expire units, and that unit cost is calculated using the average cost method:

For every product, the shrinkage value comes from multiplying the quantity by the current unit cost. In the oil, for example: 6 units times $9,500 equals a shrinkage of $57,000. After these outflows are recorded, the kardex of each item shows a shrinkage movement and the balance drops automatically. If a new physical count is done later, the system balance will match what is on the shelves, and the business will know exactly how much money it lost to shrinkage in that period.

Shrinkage, sales and theft: key differences

Staff members often confuse shrinkage with an unrecorded sale or with theft, but they are very different situations:

• Sale: goods leave the warehouse in exchange for money and are recorded with an invoice. It is revenue, not a loss.
• Shrinkage: goods leave without generating money, but in an authorized and documented way, because the product was no longer fit to be sold. It is a recognized, controlled loss.
• Theft or undocumented loss: goods disappear without authorization and without any record. It is a shortage that cannot be justified and must be investigated.

If an outflow without an invoice is not recorded as shrinkage, the system will treat it as an unexplained shortage: physical counts will never match, and you will not know whether the problem is theft, a mistake or simply a damaged product that nobody wrote off.

Tips for keeping shrinkage under control

• Record shrinkage on the same day you detect it; the longer you wait, the harder it is to identify the cause.
• Run periodic physical counts of the most sensitive products. Negative differences found during the count must be recorded as shrinkage so the kardex stays accurate.
• Review the Mermas y Disminuciones section regularly to see which products lose the most and why.
• Keep damaged or expired products physically separate from sellable ones, so nobody ships them by mistake.
• Train your staff in inventory rotation, for example applying a first-in, first-out rule to perishable products.

Conclusion

Recording shrinkage in the kardex is not a minor accounting chore: it is how you make your inventory system tell the truth about what you own. Every damaged or expired product written off on time prevents unnecessary purchases, unexplained shortages and unpleasant surprises at the physical count.

With Kardex Tauro, recording shrinkage takes only a few minutes: open the Crear Merma window, enter the product and the quantity, and the outflow automatically deducts the units from the kardex balance. Your inventory stays reliable, your loss is quantified, and your business can make decisions based on real information.