Yes to both questions.
Anything you purchase for a client is considered inventory. Therefore your business carries an inventory. Any money a client pays you for *ANY* reason is reportable income, regardless of the fact that it may cancel out the item you purchased for them.
Note that depending on your state, your business may be considered a retail business where you are required to charge a sales tax on the items you purchase for clients, and then pay that sales tax to the state on a monthly or quarterly basis.
I myself have my computer business registered as a service based business. Therefore, I'm not a retailer and I don't buy products for resale. When I need a part for a client's computer, I go out and purchase the part at a local retailer, and of course I pay the sales tax to that retailer. So the sales tax paperwork is their issue, not mine. Then I just pass on that cost to my client. To keep things straight in case I get audited, I break down my invoice to the client to show the charge for the product, and then the charge for my labor.
I make my profit on the labor/services I provide, and not on product I sell. Therefor my state considers me a service based business. Also in my state, there is no sales tax assessed on services I provide. Only on product I sell if I sell it for more than I pay for it, and I can't do that since I'm not a licensed retailer. I'm a licensed service provider.
