The finished product becomes merchandise. When that is sold, your profit is selling price less merchandise cost. I'm not sure why you would record the finished product in an income account.
Cost of Goods Sold, shown on Part III of Schedule C, is fairly easy to calculate.
- Beginning Inventory (ending inventory on last year's return)
- Plus: Purchases of direct materials (what goes into your finished product)
- Plus: Labor you paid to others
- Plus: Materials and supplies (included in your finished product)
- Less: Ending Inventory (based on a physical count of finished product and unused materials/supplies)
- = COGS
As long as your accounting entries are accurate and consistent, you should have the numbers to complete this equation.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
