Pina Colada Corp. had the following account balances at year-end: Cost of Goods Sold $62,380; Inventory $14,410; Operating Expenses $32,500; Sales Revenue $126,790; Sales Discounts $1,170; and Sales Returns and Allowances $1,700. A physical count of inventory determines that merchandise inventory on hand is $12,360.

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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.