Why does the Inventory shrinkage account disappear on a cash basis P&L ?

Hello, @Lydia-Aspire. I'll make sure to clarify things for you.

When you enable inventory tracking in your QuickBooks Online (QBO) account and make an inventory adjustment, QuickBooks creates the Inventory Shrinkage account for you. As a component of the QBO feature, this is how it works.

Here's how to set up inventory tracking:
 

1. Go to the Gear icon and select Account and settings.
2. Click the Sales tab.
3. Select Edit icon in the Products and services section.
4. Turn on Show Product/Service column on sales forms.
5. Turn on both Track quantity and price/rate and Track inventory quantity on hand.
6. Then select Save and then Done.
    

One of the impacts of inventory tracking on the balance sheet and profit and loss report is the use of cash basis as an accounting method in QuickBooks Online.

To see those balances on your Balance sheet, you'll need to customize the report and change the accounting method to Accrual. You'll need to do the same thing if you want to see the correct Gross Profit amount on your Profit and Loss.

For more information, check out this article: Impacts of inventory tracking on balance sheet and profit & loss reports.

I've also added this following articles for you future help:

• How to adjust inventory quantity on hand.
• Fix negative inventory issues in QuickBooks Online.
  
  

If you need any further assistance in managing your inventory. I'll be around to assist you. Take care!

@Lydia-Aspire 

When you're on the cash basis method of accounting, only transactions where cash is received or paid hit the financial statements.  In the case of inventory shrinkage, no cash was involved, so it will not be recognized.  Generally (there are exceptions), any business that keeps inventory, is required to use accrual accounting.