Beginning of Year (BOY) Inventory Balance - This is what 'YOU" paid for the inventory in your physical possession on Jan 1 of the tax year. it does not matter in what year you paid for it either. Note that in your first year of business or first year of dealing with inventory, the BOY Inventory Balance *MUST* be zero, with no exceptions. This is because your BOY Inventory balance must match your prior year's End of Year (EOY) Inventory balance. If this is your first year dealing with this, then the only possible way for these two to match, is if the BOY Inventory balance is ZERO. There are no exceptions.
End of Year (EOY) Inventory Balance - This is what *YOU* paid for the inventory in your physical possession on Dec 31 of the tax year. It does not matter what tax year you paid for it.
Cost of Purchases - What 'YOU" paid for inventory you actually purchased during the tax year. (do not include costs for those things in other categories here)
Purchases withdrawn for personal use - What "YOU" Paid for inventory you pulled from your salable inventory for your personal use.
Labor Costs - What "you" paid for the labor to manufacture the product you sold. Typically this will be zero because if you have employees, you've already reported what you paid those employees as such, on their W-2 forms. If you paid a 3rd party contractor to manufacture the product, then you've already reported what you paid that contractor on a 1099-MISC or 1099-NEC if applicable. (The point is, you can't claim your labor costs twice.)
Materials & Supplies - What "YOU" paid for those items that may or may not become "a material part of" the product you sell. These items may or may not be "consumed" during the manufacturing process. For example, sand paper, jigsaw blades and the such are "consumed" during the manufacturing process and do not become a material part of the product you sell. Whereas nails do become a part of the product you sell. But trying to figure and enter the cost per nail and keeping track of the number of nails used on a product is just a PITA. So if you purchased 6 boxes of nails to build 50 items and only used 5 1/2 boxes, you include here what you paid for the full 6 boxes. Just don't claim that 1/2 box again next year. Typically you'll enter zero here, as it's more common for materials and supply costs to be included in the Business Expenses section outside of the inventory section.
Other Costs to prepare for sales - This would be things like boxes, packing materials, shipping costs, etc. But again, it's more typical for these costs to be claimed in the Business Expenses section outside of the Inventory section.
