Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements.
To record sales, the perpetual system requires an extra entry to debit the Cost of goods sold and credit Merchandise Inventory.
When goods are damaged or obsolete, and can only be sold for below purchase prices, they should be recorded at net realizable value.
The net realizable value is the estimated selling price less any expense incurred to dispose of the good.
Current year gross profit is estimated by multiplying current year sales by that gross profit margin, the current year cost of goods sold is estimated by subtracting the gross profit from sales, and the ending inventory is estimated by adding cost of goods sold to goods available for sale.