Starting Your Business/Keeping Tax Records
What are Business Expenses
Inventory
An inventory is necessary to clearly show income when the
production, purchase, or sale of merchandise is an income-producing
factor. If you must account for an inventory in your business, you
must use an accrual method of accounting for your purchases and
sales. See Accrual
Method.
To figure taxable income, you must value your
inventory at the beginning and end of each tax year. To determine
the value, you need a method for identifying the items in your inventory
and a method for valuing these items. See Identifying
Cost and Valuing
Inventory.
The rules for valuing inventory cannot be the same for all kinds of
businesses. The method you use must conform to generally accepted accounting principles
for similar businesses and must clearly reflect income. Your inventory practices must be
consistent from year to year.
Important References:
Publication
538
Accounting Periods and Methods
Form
1040 Schedule C Profit or Loss From Business