There are a couple of ways to correctly account for damaged, expired, stolen or otherwise "lost" inventory.
Option 1 - The Discount
To track loss accurately, we recommend running the products through the point of sale as a "sale" with a 100% discount.
This way, the losses are tracked in your discount report and the inventory is accurately decremented.
Option 2 - The Manual Adjustment
You also have the option to simply edit the quantities (via Actions -> Edit on the inventory page) and add a note explaining the loss. This method will help you track losses using the Inventory Change Report (just check the "Removed" column).
It's up to you!
Please let us know if you have any questions. We are here to help!