The approximate cost of missing inventory is the difference between 1) the cost of the inventory that is actually on hand, and 2) the cost of the inventory that should be on hand based on the company's records.
If the company uses accounting software along with the perpetual inventory method (and the system is updated, reviewed, and adjusted routinely) then you can subtract the actual inventory on hand from the amounts shown by the software. The difference is the approximate amount of missing inventory.
If the perpetual inventory method is not used (or the system is not maintained properly) you can do the following:
- Determine the cost of the inventory when the inventory was last counted. Perhaps this was the previous December 31.
- Determine the cost of all the goods that were purchased since December31.
- Combine Item 1 and Item 2 to arrive at the cost of goods available for sale.
- Determine the cost of goods sold percentage. This is 100% minus the company's normal gross profit percentage. (This may appear on the income statements from the previous year.)
- Multiply the cost of goods sold percentage times the sales since December 31. The result is the approximate cost of goods sold.
- Subtract the approximate cost of goods sold (Item 5) from the cost of the goods available (Item 3). This is the approximate cost of goods that should be in inventory.
- Determine the cost of the goods that are actually in inventory.
- Subtract the cost of the goods that are actually in inventory (Item 7) from the cost of goods that should be in inventory (Item 6). The difference or shortage is the amount of missing inventory.