Shrinkage is determined by comparing a physical count of the inventory with recorded quantities. If the physical inventory is less than the recorded amount, debit Cost of Goods Sold, and Credit Inventory. These debit balance accounts are closed with the expense accounts to income summary. Acid-Test Ratio Used to assess the company's ability to settle its current debts with its existing assets. Calculated as Quick Assets divided by current liabilities.
Quick assets are cash, short-term investments, and account receivables.
Gross Margin Ratio Used to determine the percent of every sales dollar that is gross profit. Calculated as Gross Margin divided by Net Sales.