If you are a small business (annual revenues less than $26 million for the past 3 years old),

  • Manufactures products
  • Purchase to resell products
  • You could choose to keep inventory and use accrual accounting method to account you’re your inventory.
  • Or you could choose not to keep inventory. If you don’t keep track of your inventory, you don’t need to fill out Part III of Schedule C-Form 1040 Cost of goods Sold.

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Choose not to keep inventory

If you choose not to keep inventory, treat your items as non-incidental material and supplies or use your financial accounting treatment to clearly reflects income.

Treat inventories as non-incidental material and supplies

You can choose to not keep inventory. If you treat your products as non-incidental materials and supplies,

  • Deduct the expense incurred to purchase or produce the products that are usually considered inventories in the year you first used them or consume them in your operations. You don’t deduct the cost in the year you purchased or produced the products if they were not used that year.

Financial Accounting Treatment

  • You can use accounting method used in your financial statement
  • You can use accounting methods used in your books and records

If you want to change your accounting method file Form 3115

Choose to keep inventory

  • You generally must use accrual accounting method
  • To determine the value your inventory every year
  • To calculate the cost of goods sold

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At Nina’s Soap, we thrive to live a quality life within our budget and increase our net worth. We share many aspects of our lifestyle including personal finance, investment, business management, cooking from scratch and growing some vegetables and fruit to save money and eat healthy.

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