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small business cost of goods

I run an online fabric store. Throughout the year, I buy fabrics from various sources. Sometimes I might just purchase a very small amount in order to see whether it sells well not. When determining the cost of goods sold, should I strictly use the original price of each product I sold or can I use an average unit price to determine the material cost? Using an average price is quite convenient for me, as I usually do not purchase the material if it is more than a specific price. Thanks.

3 Replies

small business cost of goods

See https://www.irs.gov/instructions/i1040sc#en_US_2021_publink1000308085


You can use cost or any other method approved by the IRS which clearly reflects your income (including a rolling-average). 


See https://www.irs.gov/pub/irs-drop/rp-08-43.pdf

small business cost of goods

Can I understand that yes, I can use the average unit price to determine the cost of products sold? I prefer not to read the IRS rules if there is a clear answer for it. Thanks.

small business cost of goods

Yes, according to the revenue procedure and provided it clearly reflects income.

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