When computing business income and expenses, always report the entire amount of gross income first and separate from any expenses, and then the expenses separately to arrive at net income. This is true no matter what the business structure may be (sole proprietor, Partnership, or S-Corp).
How you treat the materials expense can depend. If you maintain an inventory of materials, they should be expenses using cost of goods sold. Otherwise, you can list these as supplies unless they fit in another category.
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