@Carl wrote:
.....I paid a total of $500 for those widgets over the prior two years. I also have the receipts to prove it, if audited. In 2020 I sold a total of $700 worth widgets and purchased $1000 of widgets. So here's my entries in COGS for the 2020 tax year.
BOY Inventory Balance = $0
COGS - $700
EOY Inventory Balance = $800
You really do need to use the COGS formula since it is incorporated in Schedule C and, if not followed, can result in errors.
Beginning of year PLUS Purchases LESS Ending Inventory = COGS.
Technically, taxpayers who keep an inventory are required to take a year-end physical inventory count.
