If you report with the accrual method of accounting, you will need to report the income for all the pieces you have made, including the ones you haven't sold. Under the cash method, you only report income for the money received from sales. For inventory, and the connected cost of goods sold, even using the cash method, you expense materials (cost of goods sold) as you sell them, not as you purchase them. So, if you sold 20 pieces in 2022 for $1000 and that cost you $400 in materials and labor, and you purchased $300 in materials, your income would be $1,000 and your cost of goods sold would be $400. Your inventory value would go up $300 and down by $400, so a net decrease of $100. In the end, the cash basis of accounting is most beneficial to you.
And you (and TurboTax) are correct, since you have not reported this income before, you should be reporting that your business started in 2022 (or you could be raising a concern, and beginning inventory should be $0. List the value of your inventory (everything you had as of 01/01/2022) as Cost of Purchases and your actual 2022 materials purchases and labor costs for pieces completed in 2022 under the respective categories. Be sure, when you value your ending inventory, you have valued the cost of the pieces made but not sold in 2022, including your labor.
@ClareCA
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