What is the difference between cost of purchases and materials and supplies?

[ValerieE]

If you produce a product that is sold to someone else inventory/cost of goods sold is still the most appropriate place to record the materials costs.  This is true no matter what your customer may do with the product you sell.  If you have items that are specifically identifiable in the final product you will record them under the inventory section as materials.  If the item is not specifically identifiable (like glue or screws, etc) then these items do not need to be inventoried and can be recorded as a supply expenses under other common business expenses.

You should record the sell of your product no mater who you sell it too.  Sales to individuals is reported the same as sales to a manufacturer.

There is not a credit for product given away.  You get the deduction for this product when you take them out of your ending inventory.  The deduction is the amount it cost you to produce the product and not the amount you could have sold the product for.  To take the deduction, when you calculate your ending inventory, treat the product given away the same as you do the product sold.  For example, if in beginning inventory you had 2 items and made 10 more during the year you would have 12 items to sell during the year.  If you sold 5 of them and gave 3 of them away your ending inventory would be 4 items.  You would then be able to deduct the cost of the 8 items you "sold" during the year.

[cvc4142]

HI--Can you clarify something for me? In the example below, you say that supplies NOT included in Cost of goods sold, which are are supplies like needles that are used over and over for production of inventory.  BUT in the program, materials and supplies are BOTH listed under CGS, not separately. 

The Cost of purchases I have determined are items that are sold but don't need much alteration (such as a tshirt that I embroider on) . 

I am confused on "Materials and supplies" which are a separate category, but together.  How do I separate out materials, which were determined to be "fabric" in the 2019 example and "needles" were in the supplies category, which was stated is NOT to be included in cost of goods sold, yet you outline it in the example as a "supply" expense.  If you could clarify what category would patterns, needles, scissors would be, if not "materials and supplies" under Cost of Goods sold, where would they go?  Business expense?  Thank you!

[depinat1]

so would the cost of purchase be the same as end of inventory? so if i had beginning of inventory at $2000 and end of inventory at $800 (which was the total amount of new products that  i purchased throughout the year) would i reenter the 800 as my cost of purchase?

[AliciaP1]

Yes.  The cost of purchases should be entered as the amount you spent during the year on inventory purchases.

@depinat1

[depinat1]

thank you so much so what would be my ending inventory? would that be the same as my beginning inventory since i didnt have any sales last year?

[ZoltanB45]

As long as there wasn't inventory which was lost, stolen or otherwise ruined, the beginning and ending inventory would be the same if you had no sales during the year.

[depinat1]

hello i noticed that when i put value of inventory at  the  end of year it drastically decreases ,y federal refund by almost 900 dollars why is that when i havent made any money from  the business?

thanks in advance

[depinat1]

question so if my beginning value was 3800 and i sold 93 dollars would i deduct 3800 from 93 dollars and this would be my ending value.

[ZoltanB45]

If you are saying that you sold $93 , was that the cost of the items you sold or was that your revenue (the amount you received).  If it was the cost of the items you sold, then yes that would be how to get to ending inventory. Actually the opposite of what you wrote (3800-93).

 However, you may have to circumstances like theft that may affect ending inventory. If there was no theft or did not use it for personal life, then the ending inventory would be the beginning inventory minus the cost of the items you sold.