Patricia Flynn owns a business called Patty's Place. The company uses a periodic inventory system. The beginning inventory balance was $31,000. A physical count determined her ending inventory was $25,000. Based on past experience, Patricia estimates that $3,000 of sales from this year will be returned next year. The cost of the merchandise expected to be returned is $900. Which of the following journal entries would record the ending inventory? a.Debit Income Summary for $25,000 and credit Merchandise Inventory for $25,000 b.Debit Income Summary for $6,000 and credit Merchandise Inventory for $6,000 c.Debit Merchandise Inventory for $6,000 and credit Cost of Goods Sold for $6,000 d.Debit Merchandise Inventory for $25,000 and credit Income Summary for $25,000

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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.