What causes Inventory Shrinkage anyway?

A foundation for understanding how QuickBooks and DataNinja work together.

This article will help you understand why transactions hit inventory shrinkage while QuickBooks Online and DataNinja are connected.

What is Inventory Shrinkage?

Inventory Shrinkage is the default offset account QuickBooks Online assigns to balance inventory changes that are not caused by a posting purchase or sales transaction.

The Inventory Shrinkage account is one of QuickBooks' pre-created accounts. QuickBooks automatically creates an inventory shrinkage account when the first inventory item is adjusted.

Said another way: When QuickBooks gets news about a change in inventory quantity, and that change is not caused by an Invoice, Sales Receipt, Bill, Expense, or Check. Then the dollar affects of the change to the inventory asset account MUST be balanced by an equal and opposite change somewhere else. That somewhere else is by default the Inventory Shrinkage Account.


When will QuickBooks create inventory shrink?

QuickBooks will generate an inventory shrink entry (represented in dollars) any time it needs to align its QUANTITY of inventory items with the inventory counts you have in DataNinja. Please note that this can be UP or DOWN in dollars depending on if QuickBooks is artificially HIGH or LOW relative to your inventory system of record DataNinja.

When will QuickBooks Online balance to

DataNinja is your source of truth for inventory transactions. The chart below shows how a transaction in DataNinja affects inventory asset and offsetting accounts.

DataNinjaQuickBooks Inventory Asset ChangeQuickBooks Offset to Inventory Asset Change
Receive against Purchase OrderUPCash DOWN or Payables UP
Qty Adjustment IncreaseUPShrinkage DOWN
Qty Adjustment Decrease, Scrap, or Zero OutDOWNShrinkage UP
ConsumeDOWNShrinkage UP
ProduceUPShrinkage DOWN
Ship against Sales Order (Estimate)DOWNCash/Receivables, UP, Revenue UP, COGS UP

Manufacturing Consumption and Yield Entries

When recording production in DataNinja; there will be a positive entry in Inventory Shrinkage for each raw material utilized. Once yield is recorded, and the production record is completed, DataNinja will generate a net zero purchase entry with a equal and negative offset to shrinkage. This zero-dollar expense transfers the value of materials consumed (from shrink) to the inventory asset value of the yield.


Manufacturing - Inventory value transfer from inputs to the output.

For a manufacturing run, the sum of each consumption transaction ( decreasing inventory asset and increasing shrinkage) is completely offset by the production transactions (Increasing inventory asset and decreasing shrinkage).