Chapter 4, Problem 5DQ

To determine

Perpetual Inventory System:

It is an inventory system wherein accounts related to inventory are updated on each purchase and sale activity. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.

Inventory Shrinkage:

Inventory shrinkage means the amount of inventory which exceeds the amount of inventory listed in books of accounts and actual inventory. In other words, the inventory which is non-existent in actual inventory but present there in books of account.

To explain: The ways to determine amount of inventory shrinkage in an entity which uses a perpetual inventory system.