 Hello, in this lecture we will define inventory shrinkage. According to fundamental accounting principles while 22nd edition, the definition of inventory shrinkage is inventory losses that occur as a result of theft or deterioration. So we're talking about inventory going down, inventory going down as a result of something other than sales. So it's deteriorating either through theft or it was lost or their spoilage or something of that nature. Usually we will find that out whether we are in a perpetual inventory system or a periodic inventory system through a physical count. So we'll physically count the inventory, we'll see what is left and we'll do some type of comparison to see if that's what we think should be left, which may be easier on a perpetual inventory system where we're keeping perpetual records of what should be in ending inventory. We still need that physical count to see that the inventory that is actually there matches what should be in there according to our records. If it's lower than what's in our records, then we have some form of shrinkage.