biophase
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I think you're talking about two different accounting methods. Cash is the former, Accrual (COGS) is the later. You have to pick one ... you can't expense $10,000 in product and then again add it later as a COGS expense.
So in the CASH scenario, I'm still not quite understanding.
Let's say I start with $0 and on credit buy $1000 in widgets. I sell it all for $2000. Now I have $1000 in my bank account on Dec 30th and no inventory at all. I have realized a $1000 profit correct?
Scenario 1:
On Dec 31st, I decide to buy another $1000 of inventory with the $1000 in my bank account and instantly receive the inventory. On Jan 1st, my business has $0 in its bank account and $1000 in widgets.
Scenario 2:
I do nothing on Dec 31st. On Jan 1st, my business has $1000 in its bank account and no inventory.
In my mind, my business still made $1000 and I will be paying taxes on the $1000 come April 15th.
Are you telling me that this is not the case? Are you saying that in Scenario 1, my business made no money?
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