An inventory discrepancy is a difference between the stock your records show and the stock you can count. It runs both ways: a shortfall when the records show more, a surplus when they show less. The size and sign of each difference usually point to its cause, so check the records before you suspect theft.
This guide shows how common discrepancies are, what they cost, how to trace each one and how to stop them. The worked example is a mini-mart in Lagos, in naira.
How common are inventory discrepancies?
Very common. A study of nearly 370,000 inventory records from 37 stores of one retailer found 65% of them inaccurate (DeHoratius and Raman, Management Science, 2008).
The same study names stores' inventory auditing practices among the factors that reduce the errors. Counting doesn't stop discrepancies arising; it stops them piling up.
What an inventory discrepancy costs you
A shortfall the records don't show stops reordering, and a surplus they don't show makes you buy what you have. Both cost more than the goods involved.
- Phantom stock. The records show 5 chargers and the shelf has none. No low-stock alert fires, nobody reorders, and customers leave without buying.
- Hidden stock. The records show none and a carton sits in the store room. You reorder, and cash goes into overstocking.
- Wrong forecasts. Sales rung under the wrong product make one line look slow and another fast, so forecasting orders the wrong goods.
- Wrong profit. Closing stock that is too high makes profit, and tax, too high, as the year-end inventory count example shows.
What causes inventory discrepancies?
Discrepancies come from seven places, and only the last is a loss of goods to theft. The first six are records that don't match what happened.
- Entry errors. A wrong quantity typed, or a sale or delivery entered twice or not at all.
- Units. Cartons entered as pieces, or pieces as cartons; see unit of measure.
- Look-alike products. Goods sold or received under the wrong code; see SKU management.
- Receiving. A short delivery signed for in full, or goods on the shelf that were never entered.
- Returns and damages. Customer returns not recorded, or spoiled goods thrown out without a record.
- Misplaced stock. Goods in the wrong bin, the wrong store room or the wrong branch.
- Theft and fraud. The one cause that is a real loss of goods; see inventory shrinkage.
Slow record keeping makes every cause worse. A spreadsheet updated at the end of the day is wrong all day, so every check runs against old figures.
How to find the cause: read the size and sign
Before you investigate, look at the difference itself: is it a shortfall or a surplus, and does its size match something you know? The table maps common patterns to their usual cause.
| The difference | Likely cause | Check |
|---|---|---|
| Cartons times the carton size, less the cartons entered: +117 for 3 cartons of 40 | Cartons entered as pieces, or the reverse | The last purchase and the product's units |
| Equal and opposite on two look-alike products | Sold or received under the other's code | Both products' sales since the last count |
| A surplus equal to a recent delivery | Goods on the shelf, purchase not received in the records | Purchases still pending or ordered |
| A shortfall equal to one customer's purchase | A sale left on hold, or never rung up | Held sales and the day's sales |
| A small surplus on a line customers bring back | A return not recorded as received | Pending sales returns |
| A shortfall on perishable goods | Spoiled goods thrown away, not recorded | Damages since the last count |
| A shortfall in one branch and a surplus in another | A transfer not approved or not completed | Transfers between the two |
| Stock below zero | Sold before the delivery was entered | The negative stock list |
| A small shortfall on valuable, pocket-sized lines, count after count | Theft | Who had access, and when |
Worked example: tracing eight differences in a Lagos mini-mart
For example, a Lagos mini-mart finds eight lines that don't match at its monthly count. The total says the shop holds more than its records; the lines tell a different story. The figures are illustrative, in naira at cost.
| Product | Records | Counted | Difference | Cost each | Value | Cause found |
|---|---|---|---|---|---|---|
| Instant noodles, 70 g (cartons of 40) | 296 | 413 | +117 | 400 | +46,800 | Three cartons entered as three pieces |
| Evaporated milk, 160 g tin | 96 | 84 | −12 | 750 | −9,000 | Sold as the 170 g tin |
| Evaporated milk, 170 g tin | 60 | 72 | +12 | 800 | +9,600 | The same twelve tins |
| Bottled water, pack of 12 | 30 | 54 | +24 | 2,400 | +57,600 | Delivery on the shelf, purchase still saved as ordered |
| Detergent, 900 g | 18 | 13 | −5 | 3,200 | −16,000 | Customer paid and left; the sale is still on hold |
| Phone charger | 20 | 17 | −3 | 6,500 | −19,500 | No record explains it; 2 short last month too |
| Sliced bread | 14 | 6 | −8 | 1,200 | −9,600 | Expired loaves binned, no damage recorded |
| Rice, 5 kg bag | 22 | 23 | +1 | 9,500 | +9,500 | Customer return still pending |
| Net | +69,400 |
On paper, the shop holds NGN 69,400 more stock than its records. The real losses are the chargers, NGN 19,500 with no explanation, and the bread, NGN 9,600 lost to expiry and never recorded.
The other six lines are records that fell behind the shelf. Three are fixed at their source: receive the water purchase, complete the held sale and receive the customer return.
Completing the held sale also records the payment the cash drawer already holds. The noodles and the two milks need one adjustment, with a note naming each error.
The bread goes through as a damage, and the chargers as an unexplained loss. The chargers then move to a locked display and onto the weekly count.
How to investigate a discrepancy, step by step
Work from the cheapest explanation to the most serious: recount, then records, then people. Stop at the first step that explains the difference.
- Recount with a second person. A miscount is the cheapest difference to fix.
- Read the pattern. Match the size and sign to the table above.
- Check what is waiting. Look at held sales, purchases not yet received, transfers not approved and returns not received.
- Walk the movements. Go through the product's entries since the last count, one by one; inventory reconciliation sets out the roll-forward.
- Look next door. Check the look-alike product, the shelf beside it and the other branch.
- Ask the people involved. Talk to the receiver and the cashier who worked on the days in question.
- Only then call it a loss. Adjust with a note, and watch the line at the next count.
How to stop inventory discrepancies
Each control below closes one of the causes above. Start with the ones that match the patterns your counts keep finding.
| Cause | Control |
|---|---|
| Entry errors | Scan instead of typing: barcodes and QR codes cut misreads |
| Units | Set the carton up as a unit with its conversion, so receiving one carton adds 40 pieces |
| Look-alike products | Store them apart, and give each its own barcode label |
| Receiving | Count every delivery against the purchase order before signing, and record shortages at once |
| Returns and damages | Decide on the spot: back to stock, back to the supplier or written off, and record it |
| Misplaced stock | A fixed, labelled place for each product |
| Theft | Limit who can adjust stock, lock away small valuable lines and count them weekly |
| All of them | Count a few lines every day on a cycle count rota, so each difference surfaces within weeks |
Train each new person on receiving and returns in their first week. Review the count log every quarter: the lines and the people that keep coming up show which control is missing.
The wider rules on who may receive, adjust and transfer stock are in inventory control.
Where ArmPOS shows a discrepancy's cause
In inventory management software such as ArmPOS, the till updates stock with each sale. The records that lag are the ones a person still has to finish, so check them before you adjust anything.
- Held sales. Hold saves the cart as a draft, and Recent Drafts lists them (The POS screen). A held sale moves no stock until it is completed.
- Purchases. A purchase saved as pending or ordered adds stock only when you edit it to received (Record a purchase).
- Transfers. Nothing moves until someone approves the transfer. On Sent, stock leaves one warehouse and arrives only when you set it to Completed (Move stock between warehouses).
- Sale returns. A return on Pending keeps its items out of stock until you set it to Received (Returns and refunds).
- Units. A Box set as Multiply 12 of Piece takes 12 pieces off when you sell one box (Categories, brands and units).
- Negative stock. With Allow_Overselling on, stock can fall below zero. The Negative Stock Report lists those lines to count first (Stock reports).
- History. On the Stock Report, Reports on a product's row opens its sales, purchases, returns, transfers and adjustments. The Users Report shows each person's Total adjustments.
- Corrections. Use Adjustment › Create Adjustment for count errors, and Damages › Create Damage for losses with a known cause (Count and adjust stock).
See what ArmPOS includes for shops in Nigeria.
Frequently asked questions
Is an inventory discrepancy the same as shrinkage?
No. Shrinkage is stock you have lost. A discrepancy is any difference between the records and the shelf, including surpluses and records that simply lag behind.
Can an inventory discrepancy be positive?
Yes. A surplus means the shelf holds more than the records: usually a delivery or return not yet entered, or a sale rung under another product.
What is an acceptable inventory discrepancy?
None on your most valuable lines, and a unit or two on cheap, fast ones. Judge each line, because a small net total can hide large errors in both directions.
How do you record an inventory discrepancy?
Fix the missing entry first. Adjust only what stays unexplained after a recount, with a note giving the count date and the reason.
How often should you check for discrepancies?
Every day for a few lines, on a cycle count rota, and in full at least once a year.
Take your last count's differences and run each one through the table above before you adjust anything. To see held sales, pending purchases and unapproved transfers in one place, create a free ArmPOS account.
