Inventory on hand is an asset, a balance sheet item, as such it does not impact on the P&L (schedule C).
When an inventory item is sold, the cost posts to COGS. COGS is an expense and that does impact on the P&L lowering net profit (taxable income).
Use inventory adjust, set the adjusting account to COGS-shrinkage and lower the qty of all items you want out of inventory. That will post the total cost of those items to the COGS=shrinkage account. Now you can leave it there or use a journal entry to get it completely off the books. If you want to use a journal entry, debit owner equity drawing and credit COGS-shrinkage for the total amount adjusted.
Inventory goes out of stock in one of two ways.
1. The item is listed on a sales receipt or invoice (even if at a zero sales price)
or
2. You use inventory adjust to lower the qty of the item used
I prefer #1 since that allows me to know which customer got what inventory items.
