Inventory

Question

This is a how to question. Last year was my first full year and I did not keep an inventory list. While working on taxes this past week I see the necessity of one. So I'm in the process of using a spreadsheet to start the list.

My question is: I purchased a set of Coalport Oceanside (and other sets like it). Currently on the spreadsheet I've listed it as 1 inventory item with the complete purchase price. Should I leave it as one item? Should I divide the cost by the number of pieces and list them on the spreadsheet separately (4 Bowls, 4 Plates, Gravy boat ect)? Thanks for any ideas you can give. My headings are: SKU, Purchase Price, Date Purchased, Receipt type, Date listed, DAte sold, Sold for $, Shipping cost, Ebay fee.

mega-ma-roo · Answer

As a small business, you are not required to keep an inventory. Read this article for information on how to report cost of goods sold as non-incidental materials and supplies:

Publication 538 (Rev. January 2022) (irs)

In any case, you still will want to record the cost of goods you sell so your spreadsheet is a great idea. When I purchase a lot such as your Coalport, I record it as a single item. Then, as items sell, I write off the estimated cost of each item until the full purchase price is written off. After that, the cost of each item is zero.

Say I spent $100 for the set. If I sell a Vegetable Bowl for $40, I might record the cost of the bowl as $30. Then I sell 4 plates for $80.00 and record the cost of the plates as $70.00. Now I have accounted for the total cost of the lot and any further sales from that lot the cost of the item is zero.

The important thing is to keep good records and be consistent in how you account for profits/losses. This is what the IRS says about how a small business does this: ". . .it can use the method of accounting used in its books and records prepared according to its accounting procedures."