National Distributing Company uses a periodic inventory system to track its merchandise inventory and the gross profit method to estimate ending inventory and cost of goods sold for interim periods. Net purchases for the month of August were $31,000. The July 31 and August 31, 2021, financial statements contained the following information:   Income Statements For the Months Ending August 31, 2021 July 31, 2021 Net sales $50,000 $40,000         Balance Sheets at       August 31, 2021 July 31, 2021 Assets:        Merchandise inventory $28,000 $27,000 Required: Determine the company’s cost percentage.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.