Inventory

[Ken]

I havn't visited the old board in about a week. Hope I haven't missed anything.

I have a question about inventory. I do a lot of small sole prop type business's, and I recall several years ago, that I heard or read that if you have a business that does less than a million dollars,( or whatever the minimum is), that you are not required to do a beginning and ending inventory.

Is this still true? does anyone have any more information on this?
I cant remember where I read it or where I heard it from but I have not been doing inventory on these small business's.

However one of these business's has started to do quite a bit better. He purchases around 250,000 dollars in inventory last year. Although when all was said and done he only made 28,000 dollars. Should I start doing a beginning and ending inventory? The next question is how do you change horses in the middle of the stream ( so to speak). and start doing the inventory.

[Bird Legs]

Inventory

Yes you are required to rocord your beginning and ending inventory. This is true
whether you are on cash or accrual.

[Ken]

inventory

Thanks for answering Bird Leggs. I am still a little confused as I read page 5-12 in the TB.
could you please explain part lll of schedule C. It still seems to me that if I dont have a million dollars or more in inventory then I can account for inventory the same as materials or supplies that are not incidental.
It appears to me that I just deduct the purchased inventory on schedule C part lll as materials and supplies.

[Bees Knees]

TTB, page 5-12 "Note: Even though the cash method may be used under the above conditions, inventory items must still be reported on Part III of Schedule C, rather than as materials and supplies on line 22."

All this is really doing is allowing you to use the cash method of accounting for your business. In other words, you do not have to report your accounts receivable as income until actually received, and you don't have to accrue your accounts payable until actually paid. The COGS calculation is still considered, as the cost of materials that make up inventory are still stuck in inventory until the later of the sale of the finished product, or the date the taxpayer receives payment for its sale.