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Returning Member

Cash accounting method and cost of goods sold

I have a side business with about 20K of income a year.  Mainly a service business.  I do sell parts to people, but I keep no inventory on hand.  When someone needs something I will order it and invoice them.  I use the cash accounting method. 

How do I handle cost of goods for something when for example I sell something at the end of the year.  I order the part, and pay for it, but I do not receive the check until the next year.  

Using the cash method, I wouldn't report the income until the 2020 tax year, but what about the cost of goods since I paid for the part in 2019. 

2 Replies
Level 15

Cash accounting method and cost of goods sold

but I keep no inventory on hand.

The parts you pay for can be considered and treated as a supply expense in you want, and you don't need to even mess with the COGS/Inventory section. However, you "can" use COGS to help you track what you pay for parts and the such. Is that what you desire to do?

I also don't maintain inventory, but only order parts "as needed". However, I utilize the COGS/Inventory section of the program for this, as I find it easier to keep track of the physical things I pay for, then immedidately re-sell to customers as part of the services I provide them.


Returning Member

Cash accounting method and cost of goods sold

I'd typically used the COGS section of the program to enter the parts I'd bought and sold.  I'm just not really sure which year to count the expense/COGS on. 

For my example, say I invoiced $100 to a customer on 12/1/19.  That included a $25 part bought on 12/1/19 on credit card.  I received payment for $100 in January 2020.  Just an examaple

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