Business & farm

In general, if the merchandise you purchased is for resale, it is considered Inventory. If you just started your business this year, your beginning inventory is $0 and the ending inventory is the cost of the products that you still have (did not sell). "Tell Us the Cost of Your Goods" should be the amount you paid to purchase the items from the company. If you used any products for yourself, you will enter than information as well.

With Inventory, you deduct the Cost of Goods Sold from your sales income for "net income" from sales. (Don't forget to charge sales tax.) You are taxed on the net income.

However, you may ignore inventory completely if your gross receipts were under $1 million. In this case, simply report the purchase of inventory as Materials or Supplies.This simplifies your record-keeping and your tax return. In this case, you expense the inventory when you buy it and pay tax on "gross income" from sales

See IRS Pub 334 Accounting for Inventory under "Qualifying Taxpayer"

Keeping Inventory may match your income and expenses more closely if the sales occur in a different year than you purchased the inventory. However, once you start selling on a regular basis, the difference will work itself out (with purchases and sales in the same year). In either case, you are taxed on net income - the only difference is timing.

If the items you purchased were used for advertising (not resale), you would include the amount you didn't use yourself under Other Common Business Expenses | Advertising. If you had product that was consumed for demonstration purposes, that amount would be entered under Supplies.