Hi there, I have a full time job and a small side business on Etsy selling handmade jewelry. I acquired a lot of the material that I use to make and sell handmade jewelry in prior years and have kept receipts and good accounting of those materials even though it was more of a hobby in prior years. I sell finished products on Etsy and haven't reported the income (don't yell at me, please) because I have spent way, way more in materials than I will ever make back (yes, I know I should have been reporting). At the current rate of my sales, it will take me about 20 years to break even in materials alone (yes, I'm that stupid). Etsy sent me a 1099-k for 2022, and so what I am trying to figure out is whether to use the Cash Method or the Accrual Method of Accounting. Since I purchased so much of my materials in prior years, I don't anticipate purchasing a great deal more in future years, and so if I use the Cash Method, I think it will look like I am making a profit when I'm really not. This year, I made around $8000 but I also purchased about $8000 in more materials but I think the purchasing of materials will go down over time. I have a method for determining the cost of goods sold. When figuring out what price to set for an item, I usually double the amount of materials and add a small amount, around $25, for my labor in making, photographing, describing, listing, wrapping, packing, and preparing for shipment. And so I figure I can take the number of items sold, subtract that $25 from each item, and then 50% of that is the material cost after removing things like Etsy fees, etc. I had planned to use Accrual Method since I don't anticipate purchasing a great deal more materials in the future, but I am not sure if that is the best way to go. I think I have enough materials to work with for a long while, but there are always a few things to replenish. Thank you in advance.
