Manually entering sales into a ledger or POS system can get tedious, especially if you run a retail business with lots of daily sales. For example, Square has good all-purpose tools for different sales channels, Toast’s are good for restaurants, and Shopify’s are good for ecommerce businesses. Keep in mind that the inventory management systems that come with POS systems are often tailored to different industries. Most POS systems also come with a card scanner that lets you accept card payments, send invoices and purchase orders, and offer advanced sales analytics tools.
Product code (UPC barcode number, SKU number, etc.).Name, price and quantity of product sold.Many small businesses still use pen and paper to track inventory, but popular POS systems like Square, Vend or Lightspeed offer inventory systems let you do a whole lot more.Ī good POS system can plug into a barcode scanner (see below), process debit/credit card payments, print receipts, and make the entire checkout process easier for high-volume sellers.Ī good POS system can also track all of the following information in real-time:
If you have a high-volume business, you won’t be able to do this manually, but inventory management software can help you with this (more on that below).Ī good sales or inventory ledger should record information like:Īs an example, your ledger might look like this:
At the end of the day, use the numbers in your ledger to update your total inventory numbers. You can do this with most accounting software, a spreadsheet, or even a physical notebook.Īny time you make a sale or a purchase, record it in the ledger.
The most barebones method of tracking inventory is to set up a manual inventory or sales ledger.
Here’s how to make sure your inventory data is accurate and up to date: Set up an inventory ledger Therefore, it may be easier to record inventory to track these expenses anyway.You can’t manage your inventory if you can’t track it. So you may not have to record inventory as a qualifying taxpayer, but you still need to include in COGs only those costs related to the finished goods sold.
If you are a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. You only deduct the cost of materials associated with the finished product sold.
Therefore, you do NOT deduct every raw material or wholesale product you purchased in the year even if you have inventory on hand. These non incidental costs however are deducted the year you sell the items, or the year you pay for them, whichever is later. Although you are not required to report inventory if your receipts are 1 million or less as a Qualifying Taxpayer, the costs for what would otherwise be inventoriable items are considered to be NON-incidental materials and supplies to be listed on line 36 (purchases on Sch C). Here is an article that explains in detail the reporting of inventory and Cost of Goods Sold (COGs) on your return. (For cost of goods sold calculation I report purchases of $600 less ending inventory of $300). I will report $900 income and $300 of cost of goods sold for the year. I sell 300 items for a total income of $900 by the end of the year. Whether the business is cash basis or accrual basis, cost of goods sold must be adjusted for beginning and ending inventory.Įxample - I started a business last year, and purchased 600 $1 items to sell. Businesses that have sales of less than $1 million are exempt from accrual basis reporting requirements, but no business can deduct inventory (cost of goods sold) that is not sold by the end of the year. There are exceptions to these rules and inventory is one exception. Less common - accrual basis taxpayers who report their income in the year they earn it (bill it) and report their expenses in the year they incur the expense, even if they pay for it in a later year. They would not deduct their credit card payments in later years, because they have already deducted the expense. Most common - small businesses are cash basis taxpayers and report their business income in the year they receive it and their business expenses in the year they pay it, whether it is paid by cash, check or credit card. There are multiple sets of rules for when to claim income and expenses on your tax return.