In my computer business I'm not licensed as a retailer. I'm licensed as a service based provider. That way, I don't have to deal with state sales tax paperwork. But I still use COGS.
When I need to replace a part in a computer, such as a hard drive for example, I go out and purchase that hard drive from a retailer. Of course, that retailer charges a sales tax which is clearly identified on the receipt.By law, I can't charge my customer any more than I paid for it. If it did, then I would be selling product at a profit, and would therefore be required by the state to collect and pay sales tax. All my my business profit is made on the labor. Not a penny is made on product.
My beginning and ending of year inventory balance will always be zero. In COGS, my cost of product sold will always be exactly the same as what I sold it for. In this manner if I'm ever audited (as I was in 2007 or 8), I've got a clear paper trail showing no profit from the sale of product. Though I am not required to use COGS, I can and I do just for this reason.
Now this doesn't apply to the situation in this thread. Where I see a problem though, is say you purchase $1000 worth of material and expense it. Then the business closes for whatever reason a week later. Where's the accountability for all that unused material? It can't be claimed as a loss, unless it really was a loss. IN such a case, that would probably require some type of proof I would expect.
But I digress. It falls in line perfectly with the oxymoronic rule set. 🙂
