Using the following data taken from Connor Inc. which uses a periodic inventory system to answer this question. Merchandise inventory, June 1 $393,250 Merchandise inventory, May 31 380,100 Purchases 1,579,600 Purchases returns and allowances 81,200 Purchases discounts 16,500 Sales 2,060,000 Freight in 59,250   Determine the gross profit to be reported on the income statement for the year ended May 31.

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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.