Inventory Question

[Carl]

@Jester32t I do not answer questions posted privately.

Bottom line: Your 2019 beginning of year inventory balance *must* match *exactly* your 2018 end of year inventory balance. If it does not you'll have some 'splainin' to do to the IRS, and they flat out will not accept "any" reason or excuse you may provide them.

[Jester32t]

Okay thanks. How do I post publicly?

[Carl]

BOY Inventory balance - What *you* paid for the inventory in your physical possession on Jan 1 of the tax year. It does not matter what year you paid for it either. If this is your first year of dealing with inventory, then this balance "must" be $0. If this is not your first year then the balance must match exactly your prior year's EOY inventory balance.

EOY Inventory balance - What *you* paid for the inventory in your physical possession on Dec 31 of the tax year. It does not matter in what year you paid for it either.

Cost of Goods Sold (COGS) - What "you" paid for the inventory you actually sold during the tax year. In what year you paid for it does not matter.

Example:

BOY Inventory balance $5000

EOY Inventory balance $9000

COGS - $10,000

The above indicates that you started the tax year with $5000 of inventory in your physical possession on Jan 1. During the year you purchased an additional $14,000 of inventory bringing the total to $19,000 for the tax year. During that same year you sold $10,000 worth of inventory leaving you with an EOY balance of $9000.

[Carl]

Oh, and you just did post publicly BTW. Instead of clicking an screen name, select the "Ask a Question" button to start a new thread. At this point, you don't need to start a new thread and so long as we continue on the same subject, you can just click the REPLY button at the bottom of "this" post.

ASK A QUESTION will start an entirely new thread.

REPLY will add your post to the existing thread you are replying to.

I myself think this "new" interface sucks. But then we all know what opinions are like. 🙂

[Jester32t]

Hahah well regardless of interface I need the expert advice!

So if I could clarify or confirm what you are saying. If my BOY inventory was 46k for 2019, my end of year inventory for 2019 would be 46k + any new cogs - 2019 sales? Does this maintain the same thought process? Or am I simplifying or thinking about it wrong?

[tagteam · Accepted solution]

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@Jester32t wrote:

Or am I simplifying or thinking about it wrong?

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You only have to do an internet search for "cost of goods sold formula" to discover the one that is virtually universally accepted and relatively simple:

• Beginning Inventory (at the beginning of the year)
• Plus Purchases
• Minus Ending Inventory (at the end of the year)
• Equals Cost of Goods Sold

EX:

$14,000 inventory at the beginning of the year

+ $8,000 purchases during the year
- $10,000 ending inventory

= $12,000 cost of goods sold.

[rachaelmw72]

You sound like you know more than the person at TT I'm on the phone with.

I just put in my inventory valuation. At what point will it ask for my COGS? I wanted to go accrual method rather than cash.

[tagteam]

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@rachaelmw72 wrote:

I just put in my inventory valuation. At what point will it ask for my COGS? I wanted to go accrual method rather than cash.

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The program does not ask for your COGS because COGS is part of a formula, which is derived as stated in my earlier post (COGS is actually a result, not an input). You can input your beginning inventory, your purchases (also materials/supplies and labor costs if applicable), and your ending inventory; the program will calculate your COGS.

Note that you have to change your accounting method from the default "Cash" to "Accrual" in the Business Profile section of the program.

[rachaelmw72]

@tagteam 

So here's my numbers:

Cost of inventory overall in 2019: $10,150.29

BOY inventory: $0 (started business in October)

EOY inventory: $8887

So where would I put in my 10k figure? And where do I put in my 8.8k figure? I feel foolish at this point - I'm usually very together and self-sufficient. Almost embarrassed to ask for help, but very grateful!

[rachaelmw72]

@tagteam Also... Since that's the case, should I just go with the cash method instead of accrual? If I'm ultimately putting in the same values anyway?

[tagteam]

I have to presume you are using either TurboTax Self-Employed or Home & Business. I have a copy of the latter and you start with the Inventory and Cost of Goods Sold section in which you will be asked if you have inventory to report.

One of the first few screens will be boxes to enter beginning of 2019 and end of 2019 inventory. The immediately following screen will have, among others, a box for Cost of Purchases which is where you will input the cost of the inventory you bought.

[tagteam]

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@rachaelmw72 wrote:

@tagteam Also... Since that's the case, should I just go with the cash method instead of accrual? If I'm ultimately putting in the same values anyway?

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Cash is the most common method of accounting for small businesses.

[rachaelmw72]

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@tagteam wrote:The immediately following screen will have, among others, a box for Cost of Purchases which is where you will input the cost of the inventory you bought.

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I just learned how to quote in a reply. Win. Ok, so I know exactly what box you're referring to here - so would I put my $10k value there?

[tagteam]

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@rachaelmw72 wrote:

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@tagteam wrote:The immediately following screen will have, among others, a box for Cost of Purchases which is where you will input the cost of the inventory you bought.

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I just learned how to quote in a reply. Win. Ok, so I know exactly what box you're referring to here - so would I put my $10k value there?

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Yes, you would put the $10k cost in that box.

[rachaelmw72]

@tagteam  I cannot believe I was on the phone with TT for almost an hour about this and they chalked the 0 showing up to a glitch in the system, THEN told me it's because I'm taking the standard deduction. 🙄 Thank YOU so much for your help! 😊