If you are a product-based business, it’s important to keep up with inventory for your tax returns.
Because of the relationship between Inventory and Cost of Goods Sold, the bottom line of your business (the amount you have to pay taxes on) is directly affected by the value of the inventory you still possess.
Here are some common questions regarding Inventory:
What Report Shows Inventory?
Your bookkeeper will keep up with the value of your inventory on the Balance Sheet. It does not affect the bottom line of your business until product is sold and it moves to Cost of Goods Sold on the Profit and Loss report.
How Often Should I Take a Physical Count?
The VERY MINIMUM is once a year. You will definitely want a year-end count for filing your taxes.
Am I Exempt from Keeping Inventory?
The only time a product-based business shouldn’t worry about inventory is when they actually don’t keep any on site. For example, if you own a children’s boutique, you may not purchase any clothes until the customer places an order. Then, you order FOR them, and ship it out immediately to them. In this situation, there is no need to mess with adding the order to your inventory, then immediately moving it to Cost of Goods Sold.
Do you need help keeping track of your inventory?