COGS works in a strange way. But once you understand it, then it makes sense.
What "you" pay for inventory is not deductible until the tax year you sell that inventory. Doesn't matter if you purchased that inventory in a prior tax year.
For the very first year dealing with inventory, the Beginning of Year (BOY) Inventory balance must be zero. This is because your BOY Inventory balance must be equal to your previous year's EOY (End of Year) Inventory balance. So if 2018 was the first year you carried inventory, then your BOY Inventory balance has to be zero, no matter what.
Your EOY Inventory balance is the cost (what "you" paid) of the inventory still in your physical possession on Dec 31 of the tax year.
Then your COGS (Cost of Goods Sold) is what "you" paid for the inventory you actually sold during the tax year. Examples:
BOY Inventory (On Jan 1 of the tax year) = $0
COGS = $1000
EOY Inventory (On Dec 31 of the tax year) = 0%
The above indicates I started the tax year with no inventory. During that same year I purchased $1000 of inventory, and also sold it in that same tax year. At the end of the year I had $0 of inventory remaining.
Example 2:
BOY Inventory = $1000
COGS = $2000
EOY Inventory $5000
The above indicates that I had $1000 of inventory on Jan 1 of the tax year. It shows that I purchased an additional $6000 in inventory during the tax year bringing the total inventory for the tax year to $7000. I sold $2000 worth of that inventory during the tax year, leaving me with an EOY Inventory of $5000.
