I need help with my inventory at begnning of 2022 and end of 2022 and what the "cost of purchases" means in Turbotax. I use accrual method.

[pharmacist25]

I started my business in 2022. beginning inventory $0 I assume. end of 2022 inventory cost (all that I spent on inventory in 2022) $108.  Are the actual cost of the items I sold the cost of purchase (from expenses page)?

[HopeS]

Since this is the first year of business, yes, your beginning inventory is $0. The $108 that you spend on inventory in 2022 is the Purchase amount. If you did not sell any of the $108, your ending inventory is also $108.

Ending inventory = (Beginning Inventory+Purchases) -Cost of Goods Sold.

Purchase is the inventory that was "purchased" in 2022.

@pharmacist25 

[pharmacist25]

Thanks for the reply.  I have some more exact numbers.  I was mistaken.  I am doing accrual method of accouting,  and cost method of valuing inventory.  My purchases in 2022 for inventory are $171 and I started with $0 at the beginning of 2022.  So what do I put on the screen with beginning and ending inventory?  I know beginning is $0, but does end depend on the value of what I sold?  The value of the items I sold in 2022 based on what I paid for them is $163.  I guess based on what you are saying beginning 2022 inventory is 0$, end 2022 inventory is $8?? And then the $171 goes on the next page under "Cost of Purchases"?

Again thanks for the help.

[Carl]

First, understand that your Beginning of Year (BOY) Inventory must match your prior years End of Year (EOY) inventory. Therefore, in your first year the BOY must be zero. It doesn't matter when you actually purchased that inventory. It could have been years before you even started the business. But it's the only way possible to have your BOY inventory for the current year, match your EOY inventory of the prior year.

BOY Inventory - What "you" paid for the inventory in your possession on Jan 1 of the tax year. In the first year the balance must be $0. It doesn't matter when that inventory was purchased.

EOY Inventory - What "you paid for the inventory in your possession on Dec 31 of the tax year. Again, it doesn't matter when this inventory was purchased either.

COGS (Cost of Goods Sold) - What "you" paid for the inventory you actually sold during the tax year. Again, it doesn't matter when this inventory was purchased either.

So here's a 2-year scenario.

Year 1

BOY Inventory - $0 (Matches prior year EOY inventory since you reported no EOY inventory the prior year)

EOY Inventory - $1000 (unsold inventory you had on Dec 31 of the tax year)

COGS - $500 (what you paid for the inventory you actually sold during the tax year)

The above indicates you had/obtained a total of $1500 of inventory during the tax year. You sold $500 of that inventory, leaving you with $1000 of inventory on Dec 31 of the tax year. The $500 sold is deducted from the taxable business income for that first year.

Year 2

BOY Inventory - $1000 (Matches your prior year EOY inventory, as is required)

EOY Inventory - $2000 (self explanatory)

COGS - $5000

The above shows that you started the year with $1000 of inventory. Then during the year you purchased an additional $6000 of inventory, bringing the total inventory for the 2nd year to $7000.

Of that $7000 of inventory you possessed at some point during the 2nd year, you sold $5000 of that inventory during that 2nd tax year, leaving you $2000 of inventory remaining on Dec 31 of that 2nd tax year.  The $5000 of inventory that you sold will be deducted from the taxable business income for that 2nd tax year.

[Anonymous_]

@pharmacist25 

Based upon the figures you posted, your COGS section on your Schedule C should like something like the screenshot below. Note that the critical inputs are your total purchases of $171 and your ending inventory of $8. 

[pharmacist25]

Thanks everyone very much.  I understand better now.  Want to be sure, however, that I am getting it in Turbotax to translate to what the schedule C should look like.  I understand where beginning and ending inventory should go, but on the next page after that in Turbotax the first item it wants is "Cost of Purchases" .  What would that be equivalent to in this case?  

[Anonymous_]

@pharmacist25 

According to your previous post, your cost of purchases would be $171.